<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-K


                Annual Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934

For the fiscal year ended December 31, 1999        Commission file number 1-4929

                               COMSAT Corporation
             (Exact name of registrant as specified in its charter)


       District of Columbia                              52-0781863
   (State or other jurisdiction of                   (I.R.S. Employer
   incorporation or organization)                    Identification No.)


                  6560 Rock Spring Drive, Bethesda, MD  20817
                    (Address of principal executive offices)

Registrant's telephone number, including area code:(301) 214-3000

Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange
     Title of each class                             on which registered
     -------------------                             ---------------------
     Common Stock, without par value                 New York Stock Exchange
                                                     Chicago Stock Exchange
                                                     Pacific Stock Exchange

     8 1/8% Cumulative Monthly Income                New York Stock Exchange
     Preferred Securities of
     COMSAT Capital I, L.P.

Securities registered pursuant to Section 12(g) of the Act:  None.


  Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13  or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant  was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.     Yes   X           No
                                                  -----            -----

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in any amendment to this Form 10-K. [  ]

  Aggregate market value of voting stock held by non-affiliates of the
Registrant was $444,723,060 based on a closing market price of $16.9375 per
share on March 1, 2000, as reported on the composite tape for New York Stock
Exchange listed issues.

  53,240,312 shares of common stock, without par value, were outstanding on
March 1, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE

  The following documents are incorporated by reference: NONE.


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                                    PART I

Item 1:   Business

GENERAL INFORMATION

Business Segments

   We report operating results and financial data in four business segments:
World Systems,  Mobile Communications, International and Laboratories.

 .  World Systems provides satellite capacity for voice, data, Internet, video
   and audio communications services between the U.S. and the rest of the world
   using the global satellite networks of the International Telecommunications
   Satellite Organization (INTELSAT) and New Skies Satellites, N.V.  The World
   Systems segment also includes COMSAT General Corporation and COMSAT Digital
   Teleport, Inc., which provide various satellite and ground segment services
   to commercial and government customers.

 .  Mobile Communications provides voice, data, fax, telex and information
   services for ships, aircraft and land mobile applications primarily using the
   Inmarsat satellite system.

 .  International operates an integrated group of telecommunications companies
   that provide individualized digital network solutions to business clients and
   carriers in emerging markets overseas.

 .  Laboratories provides technical consulting services and develops advanced
   communications technologies and products for satellite access and networking
   applications.

 .  Financial information by business segment for each of the last three years
   is included in Note 15 to the financial statements.

   At year end 1999, COMSAT had approximately 1,700 employees.  Of those,
approximately 100 employees were represented by a labor union.  The union
employees work at two locations, the construction site of the radio astronomy
telescope project in Green Bank, West Virginia and COMSAT's land earth station
in Santa Paula, California.

Agreement and Plan of Merger with Lockheed Martin Corporation

   COMSAT and Lockheed Martin Corporation entered into an Agreement and Plan
of Merger on September 18, 1998.  Under the merger agreement, Lockheed Martin
agreed to acquire all of the outstanding common stock of COMSAT in a two-step
transaction.  Lockheed Martin completed the first step of the transaction, a
cash tender offer to purchase 49% of COMSAT's outstanding common stock at $45.50
per share, on September 18, 1999.  The second step of the transaction is the
merger of COMSAT with a Lockheed Martin subsidiary. In the merger, each share of
COMSAT common stock will be converted into one share of Lockheed Martin common

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stock.  The merger remains subject to satisfaction of several conditions, which
principally include receipt of the remaining required regulatory approvals.  The
business combination with Lockheed Martin is discussed in greater detail in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Outlook" and Note 2 to the financial statements.

   In connection with the merger agreement, COMSAT and Lockheed Martin entered
into three additional agreements related to the overall transaction:  a
shareholders agreement, a registration rights agreement, and a carrier
acquisition agreement.  Those agreements are described in Note 2 to the
financial statements.  Under the shareholders agreement, COMSAT agreed to name
three individuals designated by Lockheed Martin to its Board of Directors.
Marcus C. Bennett, Caleb B. Hurtt and John V. Sponyoe currently serve as
Lockheed Martin's designated directors under the terms of the shareholders
agreement.

   To facilitate completion of the tender offer, and in accordance with the
terms of the carrier acquisition agreement, COMSAT sold COMSAT Government
Systems, Inc., an authorized common carrier subsidiary, to Lockheed Martin at
approximately book value. The operating results of COMSAT Government Systems are
included as part of the World Systems segment through September 18, 1999, the
date that COMSAT Government Systems was merged with a subsidiary of Lockheed
Martin.

Communications Satellite Act of 1962

   COMSAT was incorporated in 1963 under District of Columbia law, as authorized
by the Communications Satellite Act of 1962.  COMSAT is not an agency or
establishment of the United States Government.  The U.S. Government has not
invested funds in COMSAT, guaranteed funds invested in COMSAT or guaranteed the
payment of dividends by COMSAT.  The U.S. Government has no ownership interest
in COMSAT.

   Prior to recent amendments enacted in March 2000, the Satellite Act regulated
various aspects of COMSAT's structure, ownership and operations.  For example:

 .  The Satellite Act placed limitations on the percentage of outstanding COMSAT
   common stock that a person or class of persons may hold.

 .  The Satellite Act provided that three of COMSAT's 15 director positions were
   to be appointed by the President of the United States with the advice and
   consent of the United States Senate.

 .  COMSAT's issuance of capital stock and borrowing of money is subject to
   oversight by the Federal Communications Commission (FCC).

 .  On matters that may affect the national interest and foreign policy of the
   United States, COMSAT's representative to INTELSAT receives instruction from
   the U.S. Government pursuant to the Satellite Act.

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   In March 2000, Congress passed and the President signed the Open-Market
Reorganization for the Betterment of International Telecommunications Act
(commonly referred to as the "ORBIT Act").  The ORBIT Act amends the Satellite
Act and repeals upon enactment the special restrictions on the ownership of
COMSAT's common stock.  The legislation will permit the merger with Lockheed
Martin to be completed following receipt of the remaining required regulatory
approvals.  The ORBIT Act repeals the provisions of the Satellite Act that
require COMSAT to have three Presidentially-appointed directors.  Two of those
three positions were vacant pending Presidential appointment.  The term of
COMSAT's remaining Presidentially-appointed director expired upon enactment of
the ORBIT Act.  We also anticipate that, under the ORBIT Act, FCC regulation of
our capital structure will be eliminated.  However, COMSAT will remain subject
to U.S. Government instruction, in its capacity as the U.S. Signatory to
INTELSAT, until the privatization of INTELSAT is completed.

   The ORBIT Act also establishes deadlines for the privatization of INTELSAT
and the completion of initial public offerings by INTELSAT, Inmarsat and New
Skies, as well as specific criteria for determining whether the privatizations
of those entities are pro-competitive.  If those criteria are not met, the FCC
may limit access by U.S. users to the satellite capacity of the privatized
entities for so-called "non-core" services.  During the transition to
privatization, the ORBIT Act also codifies an FCC action taken in 1999 that
permits U.S. users and telecommunications providers to acquire satellite
capacity directly from INTELSAT without going through COMSAT ("Level 3" direct
access).  In addition, the ORBIT Act removes COMSAT's immunity from suit in its
capacity as an INTELSAT Signatory, subject to a limited exception for actions
taken pursuant to U.S. Government instruction.

   These and other provisions of the ORBIT Act are discussed in greater detail
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Outlook -- Regulatory and Legislative Developments."

Government Regulation

   COMSAT is subject to regulation by the FCC under the Satellite Act and
Communications Act of 1934 with respect to various aspects of its World Systems
and Mobile Communications businesses.  FCC decisions and policies have had, and
are expected to continue to have, a significant effect on COMSAT.

   Specific aspects of the regulation of World Systems and Mobile
Communications are discussed in the narratives concerning those segments.  See
"Business - COMSAT World Systems -Regulation" and "Business - COMSAT Mobile
Communications - Regulation."

   In addition, national and local regulatory authorities regulate COMSAT's
operations in various developing foreign countries.  The regulatory environment
in many of those countries is rapidly evolving as the economies of those
countries develop.  COMSAT's operations in those countries have faced, and are
likely to continue to face, regulatory, economic and business uncertainty.

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COMSAT WORLD SYSTEMS

Services

   World Systems provides satellite capacity for telephone, data, Internet,
video and audio communications services between the United States and the rest
of the world using the global satellite networks of INTELSAT and New Skies.
World Systems' customers include U.S. international communications common
carriers, teleports, private network providers, multinational corporations, U.S.
and international broadcasters, news-gathering organizations, digital audio
companies and the U.S. Government.

   Digital satellite capacity leasing, including international VSAT (very small
aperature terminal) service, is the fastest growing source of revenues for World
Systems.  World Systems' digital services provide fast, reliable and secure
connections to communication networks around the globe.  Internet service
providers, carriers, and multinational corporations use World Systems' digital
services to extend their network reach to meet market demand. Customers also use
World Systems' international business service to implement their Internet
applications.

   World Systems' digital services are well-suited for either high speed point-
to-point or point-to-multipoint Internet applications. In addition, World
Systems' digital satellite services offer asymmetric data rates, quick and
scalable satellite connectivity, and simplified network architectures.  Global
demand for Internet access has been growing at a high rate.  Internet
applications were the main growth driver for digital leases, VSAT and
international business services in 1999.

   Customers have established international VSAT networks in both Latin America
and Europe.  Using on-premise antennas as small as 1.8 meters in combination
with the high-power satellites in the INTELSAT network, corporations doing
business internationally deliver communications to multiple sites.  Used
primarily for data transmissions, VSATs also accommodate voice and video
communications.

   For private-line customers, World Systems offers an all-digital international
business service, as well as an international VSAT (very small aperture
terminal) service.  International business service offers customers high-speed,
digital communications for voice, data, facsimile and video conferencing using
on-premise earth stations that eliminate the need for costly land-line
connections.

   World Systems also provides full-time voice-grade half-circuits (two-way
communications links between an earth station and an INTELSAT satellite) to U.S.
international communications common carriers.  The three largest carrier
customers are MCI WorldCom, Inc., AT&T Corp. and Sprint Corporation.  World
Systems offers significant discounts to customers entering into long-term
commitments for full-time voice-grade half-circuits.  In October 1999, COMSAT
amended its inter-carrier agreement with AT&T to provide price reductions in
exchange for AT&T's commitment to maintain specified levels of traffic on the
INTELSAT system via COMSAT through at least 2006.

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   World Systems' voice and data services are virtually all digital.
International digital route (IDR) service, for example, makes it possible for
communications carriers to provide digital public-switched telephone network
circuits.  Carriers are able to use a single digital circuit to handle multiple
telephone calls simultaneously with existing technology.

   World Systems provides digital and analog video transmission services to the
international broadcasting community.  World Systems offers high-power, flexible
satellite capacity to broadcasters and news services under long-term and short-
term leases.  World Systems also offers occasional use service on an as-needed
basis.

   To maintain the quality of the INTELSAT network, World Systems provides
tracking, telemetry, control and monitoring (TTC&M) services to INTELSAT and
engages in a program of research and development to ensure that the satellite
system accommodates the latest communications technologies, including broadband,
Internet protocol (IP), frame relay, integrated services digital network (ISDN),
and asynchronous transfer mode (ATM).

   The World Systems segment also includes the operations of COMSAT General
Corporation and COMSAT Digital Teleport, Inc., both of which are wholly-owned
subsidiaries of COMSAT.

   COMSAT General provides satellite-based communications services for various
business and government applications. Customers use COMSAT General's services
for voice, data, Internet and video broadcast applications.  COMSAT General's
services include satellite circuits, ground station transit services, connecting
terrestrial links, baseband network terminal equipment and engineering services
for international host nation licensing and approvals.  COMSAT General provides
services to commercial, government and international organizations, and is an
FCC-licensed common carrier.  COMSAT General provides satellite services to
customers using both international and domestic satellite systems, including
INTELSAT and Inmarsat.  COMSAT General also accesses the INTELSAT system from
foreign countries. COMSAT General operates a satellite control facility and high
speed fiber interconnects to telecommunications carriers and Internet service
providers.  In addition, COMSAT General provides transponder capacity on the
MARISAT and COMSTAR satellites.  These satellites, however, have reached the end
of their estimated design lives and are currently in inclined orbit.

   COMSAT Digital Teleport operates satellite earth station facilities in
Clarksburg, Maryland, Santa Paula, California, and Southbury, Connecticut.
COMSAT Digital Teleport provides satellite operation service for the MARISAT and
COMSTAR satellites, including tracking, telemetry, command and orbital
maintenance for those spacecraft.

   COMSAT Digital Teleport provides turnkey communication services for Internet
service providers, international carriers, multinational corporations and
government agencies.  These services include satellite segment, terrestrial
interconnnect, network management, and installation and maintenance of required
hardware. COMSAT Digital Teleport services support various  applications via
satellite, including frame relay and asynchronous transfer mode.

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   In September 1999, COMSAT Government Systems, Inc., a wholly-owned subsidiary
of COMSAT, was sold to Lockheed Martin as part of the transactions contemplated
by the merger agreement and the carrier acquisition agreement.  COMSAT
Government Systems was established primarily to support the Commercial Satellite
Communications Initiative program of the Defense Information Systems Agency to
provide bulk commercial satellite transponder leases.  Prior to the sale, COMSAT
Government Systems was included as part of the World Systems segment.

INTELSAT

  INTELSAT is a 143-member international organization headquartered in
Washington, D.C.  It operates under three agreements: an intergovernmental
agreement; a headquarters agreement with the U.S. Government; and an operating
agreement signed by each member nation's government or designated
telecommunications entity (a Signatory).

  COMSAT is the U.S. Signatory.  It represents the U.S. in INTELSAT, subject to
instruction from the Department of State (in concert with the Department of
Commerce and the FCC) on matters that may affect U.S. national interest and
foreign policy.

  Each Signatory-owner or investor has rights and obligations in INTELSAT
analogous to those of a partner in a partnership.  Each owns an investment
share, makes proportionate contributions to INTELSAT's capital costs, and
receives proportionate distributions of INTELSAT's net revenues after deductions
for operating expenses.  Signatories also pay INTELSAT for their use of the
satellite system.  The investment shares are readjusted in March of each year to
approximate the Signatories' respective portions of the total use of the
INTELSAT space segment for the previous six months.  COMSAT's investment share,
the largest in INTELSAT, was 20.4% as of December 31, 1999, compared to 18.4% at
December 31, 1998.  During 1999, we increased our total ownership share of
INTELSAT to 20.4%.  Effective as of March 1, 2000, we increased our total
ownership share of INTELSAT to 22.5%.

   At December 31, 1999, total INTELSAT owners' equity was approximately $1.55
billion.  The rate of return on owners' capital varies based on business
conditions.  INTELSAT does not guarantee a return to Signatories.  The return on
World Systems investment in INTELSAT is included as part of World Systems'
operating results.  A small portion of COMSAT's ownership in INTELSAT is held
through International.  The return on International's investment in INTELSAT is
included as part of International's operating results.

   INTELSAT generally procures spacecraft and launch services under long-term,
multi-satellite contracts which provide for payments by INTELSAT over the
contract periods.  Under the satellite construction contracts, approximately 70%
of spacecraft cost is typically paid to the manufacturer during construction
prior to spacecraft delivery and satellite launch.  In addition, approximately
15% typically is paid after the satellite has been placed in orbit and has
satisfactorily completed in-orbit testing.  The remaining portion of the
spacecraft cost typically is paid periodically as performance incentives over
the designated design life of the satellite contingent upon continued successful
operation of the satellite over a designated period.

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   Under the launch service contracts, launch services costs typically are paid
in quarterly installments with the final payment due at the end of the planned
launch period.  Launch payments are payable in full whether or not the launch
has resulted in launch success.

   INTELSAT has purchased launch and post-separation insurance coverage for
possible losses that may occur during the launch and subsequent one-year periods
for satellites scheduled for launch from 2001 through 2002.  The coverage
includes the cost of the satellite, launch services and associated capitalized
interest, as well as the cost of the insurance itself.  This insurance protects
COMSAT in proportion to its interest in INTELSAT.  Launch and post-separation
insurance for the INTELSAT satellites does not protect COMSAT against business
interruption, loss or delay of revenues and similar losses and may not fully
reimburse COMSAT or INTELSAT for their total expenditures.  Beyond the one year
post-separation period, COMSAT and INTELSAT rely on the spare capacity on the
satellite fleets, to the extent available, to avoid an interruption of customer
service and revenues.  Neither INTELSAT nor COMSAT procures insurance for the
in-orbit failure of satellites beyond the one-year, post-separation period.

   INTELSAT generally offers long-term commitments for transponder capacity of
one, two, three, five, ten or fifteen years for a range of services at INTELSAT
tariff rates which are progressively lower for the longer-term commitment
periods. We have entered into contracts for capacity with INTELSAT to deliver
service to our customers.  The contract terms for the capacity range from one to
fifteen years.  World Systems manages its capacity contracts with INTELSAT based
on customer demand for service.

INTELSAT Privatization

     INTELSAT is continuing its efforts to transform itself from a treaty-based,
intergovernmental organization to a fully-private, commercial company.  In
October 1999, INTELSAT's Assembly of Parties (a meeting of the member
governments of INTELSAT) unanimously approved a plan targeting the privatization
of INTELSAT as early as April 1, 2001.  Following privatization, INTELSAT would
operate as a private corporation without intergovernmental privileges and
immunities.  While the new, privatized company would not be publicly-traded
initially, it is contemplated that an initial public offering would take place
in 2002, subject to market conditions and the actual date operations are
transferred to the restructured INTELSAT.  Additional information concerning
INTELSAT privatization is included as part of  "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook -
Restructuring of INTELSAT."

     INTELSAT has expressed concerns that the ORBIT Act potentially may violate
the INTELSAT Agreement by, among other matters, attempting to control the timing
of INTELSAT privatization, establishing privatization criteria, and restricting
INTELSAT to certain so-called "core" services if the privatization criteria are
not satisfied.  INTELSAT's reaction to the ORBIT Act is discussed in greater
detail under "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Outlook - Legislative and Regulatory Developments."

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Regulation of World Systems

     The FCC regulates World Systems' provision of communications services under
the Communications Act and the Satellite Act.  World Systems provides its
services on a non-discriminatory basis to all customers, either under tariffs
filed with the FCC or on the basis of inter-carrier contracts.

     Prior to passage of the ORBIT Act, the FCC adopted a new policy of direct
access to INTELSAT in the United States.  The ORBIT Act codifies the FCC
rulemaking that permits U.S. users and telecommunications providers to acquire
satellite capacity directly from INTELSAT without going through COMSAT ("Level
3" direct access).  In the direct access proceeding, the FCC rejected requests
to allow entities other than COMSAT to invest in INTELSAT proportionate to their
usage, finding that the FCC lacked the authority under the Satellite Act to
permit "Level 4" direct access.  The ORBIT Act does not prescribe Level 4 direct
access.

     The FCC also authorized COMSAT to file a tariff to charge all direct access
users a surcharge to recover the costs incurred by COMSAT as Signatory to
INTELSAT.  COMSAT subsequently filed a direct access tariff that became
effective on December 6, 1999.  Under the tariff, direct access users must pay
COMSAT 5.58% of the rate the direct access users pay for capacity ordered
directly from INTELSAT.  The level of this surcharge will be reviewed in 2001,
and the surcharge will be eliminated upon privatization of INTELSAT. Direct
access is discussed in greater detail under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Outlook --
Regulatory and Legislative Developments" and in Note 11 to the financial
statements.

     Direct access may fundamentally change the way COMSAT does business and
could adversely affect future World Systems' revenues. We discuss the potential
financial impact of direct access on COMSAT under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook - Potential
Trends That May Affect Operating Performance."

     COMSAT pays required fees to the FCC for applications and other filings and
for annual regulatory fees applicable to it as a U.S. common carrier.  To date,
however, the FCC has not imposed "space station" regulatory fees on COMSAT with
respect to the satellites of INTELSAT and Inmarsat.  In December 1999, the U.S.
Court of Appeals for the D.C. Circuit reviewed the FCC order setting the
regulatory fees for 1998.  The Court remanded the case to the FCC to reconsider
whether COMSAT should be subject to space station regulatory fees.  The ORBIT
Act clarifies that the FCC has authority to impose regulatory fees on COMSAT
similar to the regulatory fees that it imposes on other entities providing
similar services.  It is unclear whether space station regulatory fees can be
imposed on COMSAT, since COMSAT is a satellite services provider and not a
satellite system operator.  Moreover, if such fees were imposed, it is unclear
how such fees would be calculated and which satellites would be affected.  We
discuss the potential financial impact of "space station" regulatory fees on
COMSAT under "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Outlook - Legislative and Regulatory Developments."

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     In November 1998, INTELSAT transferred five in-orbit satellites to New
Skies Satellites N.V.  New Skies is an entirely separate, independent company
spun off from INTELSAT.  In June 1998, the FCC issued a public notice requiring
U.S. earth stations using INTELSAT satellites that were scheduled to be
transferred to New Skies to file license modification applications in order to
access the New Skies system.  Several companies, including COMSAT and COMSAT
General, filed applications in response to this notice.  On August 6, 1999, the
FCC granted these applications for a three-year license term.  U.S. earth
stations may now access New Skies satellites for both domestic and international
services.  The FCC stated that it would consider extending these licenses for a
full ten-year term upon an appropriate showing by New Skies.  In the meantime,
it directed New Skies to file quarterly status reports on its plans for an
initial public offering and its progress in achieving more complete independence
from INTELSAT.

     The ORBIT Act establishes criteria for the pro-competitive privatization of
INTELSAT, Inmarsat and New Skies, including target dates for completion of their
initial public offerings.  The ORBIT Act provides that, if these and other
criteria are not met, the FCC may not license U.S. users (or may limit such
licenses) to access the satellite capacity of the privatized entities for so-
called "non-core" services.  We discuss the potential service offering
restrictions that the ORBIT Act may impose on INTELSAT, Inmarsat and New Skies
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Outlook - Legislative and Regulatory Developments."

     In April 1998, the FCC granted COMSAT's petition to deregulate and
reclassify World Systems as a non-dominant common carrier in its major markets.
The FCC's decision eliminated rate-of-return restrictions, structural separation
regulation and 14-day advance tariff notification in regard to approximately 90%
of COMSAT's INTELSAT business.  It also allowed World Systems to integrate earth
station and space segment services, requiring only that COMSAT list those
offerings separately in tariff filings at the FCC.  In February 1999, the FCC
further deregulated COMSAT by eliminating rate of return regulation on so-called
non-competitive "thin routes" and occasional use "single carrier" markets.  In
its place, the FCC adopted an incentive-based price policy for COMSAT's
provision of INTELSAT services in these markets.  The FCC also adopted a
procedure for reclassifying these markets as non-dominant as competition is
introduced.

   In 1997, in its "DISCO-II" rulemaking proceeding, the FCC addressed whether
COMSAT could provide domestic satellite services within the United States via
INTELSAT.  The FCC ruled that COMSAT must waive its limited immunity from suit
for actions related to its role as the U.S. Signatory to INTELSAT as a
precondition to providing such services.  COMSAT appealed that ruling on the
grounds that the FCC lacked the authority to require COMSAT to abrogate its
limited immunity (since the immunity arose from international agreements entered
into by the U.S.).  The ORBIT Act removes COMSAT's immunity from suit in its
capacity as an INTELSAT Signatory.  A limited exception is provided for actions
taken to carry out instructions of the U.S. Government.  Accordingly, we
anticipate that the FCC will now allow COMSAT to provide domestic satellite
services via INTELSAT.

   COMSAT General is licensed by the FCC to operate the MARISAT F-2 and COMSTAR
D-4 satellites and is the licensee of a number of earth stations, which are
chiefly located at Clarksburg, Maryland.  There are also several earth stations
located at Clarksburg, Maryland, Santa Paula,

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California and Paumalu, Hawaii that are licensed to COMSAT for use by World
Systems to provide tracking, telemetry, command and orbital maintenance to
INTELSAT under an engineering support contract.

Competition

  World Systems is subject to substantial and increasing competition from U.S.
and foreign satellite service providers, as well as undersea fiber optic cable
systems.  Currently there are more than fifty satellite operators with over 180
geostationary satellites providing services around the globe.  Of those, over 50
satellites are capable of providing international service to or from the U.S. in
competition with COMSAT. Competing satellite service providers offer a full
range of services.  Voice and data services are provided by numerous satellite
systems, including Hughes/PanAmSat, Loral/Orion, GE Americom, Columbia
Communications, Eutelsat, Teleglobe and others.  A number of satellite systems
provide video service in direct competition with COMSAT and INTELSAT, including
Hughes/PanAmSat, Loral/Orion, Columbia Communications and regional satellite
systems (e.g., Hispasat, JSAT, and France Telecom).  Many of the Corporation's
competitors have plans to substantially expand capacity over the next few years.

     COMSAT also faces direct competition from INTELSAT as a result of the FCC's
direct access order, which became effective in December 1999.  INTELSAT now has
the authority to contract directly with U.S. carriers and users for satellite
capacity to and from the U.S.  In addition, New Skies provides satellite
capacity to and from the U.S. directly and through others in competition with
the services offered by COMSAT.

  In the direct access proceeding, several of COMSAT's largest customers asked
the FCC to nullify their contracts with COMSAT pursuant to the so-called "fresh
look" doctrine.  The FCC rejected these requests, thus preserving COMSAT's
backlog of contractual capacity commitments.  The FCC also declined to pursue
claims for "portability" of COMSAT's capacity to users.  The ORBIT Act, however,
requires the FCC to complete a proceeding within six months of enactment to
determine if users or providers of telecommunications services have sufficient
opportunity to access INTELSAT space segment capacity directly from INTELSAT.
If the FCC determines that such opportunity does not exist, the FCC must take
appropriate action to facilitate direct access.  However, the FCC is prohibited
by the ORBIT Act from modifying or abrogating COMSAT's contracts with its
customers and INTELSAT.

     In addition, COMSAT also faces competition from other countries' INTELSAT
Signatories in the provision of voice, video and data services.  Earth stations
located in other countries that are within the footprint of satellites sending
signals to U.S. earth stations may be providing service to customers in the U.S.
by routing traffic through a non-U.S. earth station connected to U.S. customers
by domestic satellite or fiber optic cable.

   COMSAT also faces significant competition from service providers utilizing
undersea fiber optic cable systems to provide voice, data, and video services.
Undersea fiber optic cable is the predominant mode of transmission for voice and
data traffic, and is increasingly being used to

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carry transoceanic video programming. World Systems' major carrier customers are
co-owners of fiber optic cable systems.

Revenues

   Approximately 55% of COMSAT's consolidated revenues in 1999 were derived from
World Systems' services (compared to 49% in 1998 and 51% in 1997).
Approximately 10% of COMSAT's consolidated revenues in 1999 were derived from
World Systems' services to its largest customer.  Also in 1999, World Systems'
three largest customers were the source of approximately 19%, 17% and 15%,
respectively, of World Systems' revenues.  See Note 15 to the financial
statements.

COMSAT MOBILE COMMUNICATIONS

   COMSAT Mobile provides satellite telecommunications services for maritime,
aeronautical and land mobile applications, primarily using the Inmarsat
satellite system.  Mobile operates land earth stations in Southbury, Connecticut
and Santa Paula, California, which serve the Inmarsat Atlantic and Pacific Ocean
Regions.  Mobile also has contractual cooperative arrangements for shared access
to land earth stations located in Malaysia, Italy and Australia.  These stations
enable Mobile to offer global coverage for its services.  There are currently
approximately 185,000 mobile terminals operating in the Inmarsat system.  Mobile
provides a full range of voice, facsimile, data and telex services, as well as
certain value-added services.

Maritime Services

   Mobile provides satellite services for a full range of telephony and data
communications to and from ships and other vessels.  Customers for these
services include maritime vessels, as well as U.S. carriers and foreign
telecommunications administrations.  In addition to the traditional analog
Inmarsat A service, Mobile offers four digital services: Inmarsat-B, Inmarsat-C,
Inmarsat-M and Mini-M on a global basis.  These digital services provide more
efficient use of the Inmarsat satellite capacity, help to significantly lower
the cost of using satellite communications, and expand the potential customer
base for maritime and land mobile services.

   Mobile also provides C-Band communications to cruise ships.  For example, in
1999, Mobile  signed a three-year agreement with Cunard Line Limited to provide
a combination of Inmarsat and C-Band communications to Cunard's fleet of eight
cruise ships on a global basis.

                                       11
<PAGE>

Aeronautical Services

   Mobile provides satellite telecommunications services for aeronautical
applications, including airline operational and administrative communications,
passenger telephone service and air traffic control.  Customers of Mobile for
international aeronautical services include airline service providers,
commercial airlines, government aircraft and corporate aircraft.

   Mobile provides aeronautical voice services in the Atlantic and Pacific Ocean
Regions through its earth stations at Southbury, Connecticut and Santa Paula,
California.  Mobile provides aeronautical services in the Indian Ocean region
under arrangements with operators in Italy, Norway and Japan.  There are
currently more than 2,400 aircraft equipped to use the Inmarsat aeronautical
system for voice and data services.  Mobile provides aeronautical customers with
a data service for cockpit communications on commercial flights under an
agreement with Aeronautical Radio, Inc., an airline-owned service organization.

   Mobile also provides aeronautical satellite communications services for
passengers (including telephone, fax and data transmission) to a number of
airlines including United, Delta and Air Canada.  In 1999, CMC signed a three-
year agreement with Aerolineas Argentinas for similar services.

   In 1996, the Federal Aviation Administration (FAA) awarded Mobile a 5-year,
$57 million contract to provide satellite services for its Wide Area
Augmentation System (WAAS).  In early 2000, the FAA exercised an option and
extended the contract to September 2006 with an additional value of $24 million.

Land Mobile Services

   Mobile provides telecommunications services for international land mobile
applications, using mobile and portable terminals located outside of the United
States.  Customers for these services include broadcasters, foreign
telecommunications authorities and U.S. and foreign corporations and government
agencies.

   Mobile's land mobile services are available on a global basis using
transportable versions of Inmarsat's Inmarsat-A and Inmarsat-B mobile earth
stations (telephone, facsimile, data, and telex), a briefcase-size Inmarsat-M
terminal, and a low-cost, notebook-size Mini-M terminal.  To promote the Mini-M
service, Mobile procured 5,000 of its own branded Planet 1TM terminals for
resale to customers.  By year-end 1999, all of these terminals had been sold.
Many were sold to customers in response to anticipated possible year 2000
communications problems.

   In 1999, Mobile signed a contract with the state-owned railroad of Argentina
to provide mobile satellite communications via Inmarsat-C, a data-only service,
for operational safety and monitoring.

   Mobile plans to introduce a new land-based communications service in 2000
called COMSAT Mobile ISDN.  This new service will provide voice and data up to
64 kpbs using a low cost and

                                       12
<PAGE>

smaller-sized terminal. COMSAT Mobile ISDN will also allow for low-cost Internet
access via a packet-data service.

Leased Services

   In 1999, Inmarsat designated a separate global constellation of satellites to
provide full-period lease services.  This constellation uses two Inmarsat-2
satellites and a spare Inmarsat 3.  Mobile has entered into contractual
arrangements that enable it to access this new constellation with operators in
Italy and Australia, and has made upgrades to its Southbury, Connecticut earth
station.  As a result of these efforts, Mobile now provides global leased
services.

Inmarsat

     The privatization of Inmarsat was completed on April 15, 1999.  We now own
22.2% of Inmarsat Holdings, Ltd., a new, independent commercial company based in
London, England.  The new company is not currently publicly traded but is
expected to conduct an initial public offering within approximately two years of
the privatization, subject to market conditions.  As a result of the
privatization, we are using the equity method to account for our investment in
Inmarsat.  We previously used the pro rata consolidation method.  See Note 1 to
the financial statements.

   Prior to privatization, Inmarsat was an 87-nation, intergovernmental
organization headquartered in London, England.  It operated under three
agreements: an intergovernmental convention; a headquarters agreement with the
United Kingdom Government; and an operating agreement signed by each member
nation's government or designated telecommunications entity (a Signatory).

   COMSAT was the U.S. Signatory.  It represented the U.S. in Inmarsat, subject
to instruction from the Department of State (in concert with the Department of
Commerce and the FCC) on matters affecting U.S. national interest and foreign
policy.

   Four of the Inmarsat-3 satellites are the primary operational Inmarsat
spacecraft and are used for on-demand services such as Inmarsat A, B, M, Mini-M,
C, and Aeronautical.  Some services such as Mini-M and Aero-I are spot beam only
services and can only be supported on the Inmarsat-3 satellites. The fifth
Inmarsat-3 satellite is planned to be used primarily for bulk services and
backup capacity.

   Two of the four Inmarsat-2 satellites have been re-deployed to provide a
global lease constellation, along with one Inmarsat-3.  The other two Inmarsat-2
satellites are used as in-orbit spares providing backup for global beam services
on the Inmarsat-3 satellites.

   In December 1999, Inmarsat announced that it plans to procure a fourth
generation system at a cost of $1.4 billion.  This will consist of two in-orbit
satellites plus one on-ground spare.  Beginning in 2004, the Inmarsat-4
satellites are expected to offer an expanded range of personal,

                                       13
<PAGE>

multimedia communications services at 144-432 kbps using portable, lightweight,
Internet-ready mobile satellite terminals.

   All of the existing Inmarsat satellites have been in orbit for more than one
year and, as a result, are no longer insured for in-orbit loss under the terms
of the insurance policies procured at the time of launch.  Neither Inmarsat nor
COMSAT procures insurance for the in-orbit failure of satellites beyond the one-
year, post-separation period. COMSAT also does not procure insurance to protect
against business interruption, loss or delay of revenues and similar losses for
potential in-orbit failure of the Inmarsat satellites.  COMSAT and Inmarsat rely
on spare and preemptible capacity on the satellite fleets, to the extent
available, to minimize potential interruption of customer service and revenues
in the event of an in-orbit failure.

Regulation of Mobile

  As a common carrier, Mobile is subject to regulation by the FCC concerning its
provision of communications services and the rates it charges for those
services.  Mobile is currently regulated as a dominant carrier.  Several
existing FCC orders generally limit Mobile's services to international services.
Mobile is licensed by the FCC to provide international maritime, aeronautical,
and land mobile services on a worldwide basis, except for services that are
entirely within the United States.

  With respect to land mobile services, Mobile is permitted to provide purely
domestic services only under a very limited number of circumstances.  Most
recently, for example, COMSAT was authorized to provide "Y2K" contingency
services in the United States to a large number of commercial customers.

  With respect to aeronautical services, in 1999, the FCC issued an order
granting Mobile permanent authority to provide service within the United States
on the domestic portions of international flights.  Mobile is also authorized,
by long-standing grant of special temporary authority, to serve existing
customers operating aircraft entirely within the United States.

  Following the privatization of Inmarsat, most of the provisions of the
Inmarsat Act governing COMSAT's rights and obligations are no longer in force.
Significantly, COMSAT is no longer the sole authorized provider of Inmarsat
space segment for U.S.-originating traffic, so there is no longer a legal bar to
other land earth station operators accessing Inmarsat space segment directly to
serve U.S.-based customers.  Inmarsat's privatization also means that neither
Inmarsat nor COMSAT benefits any longer from so-called "privileges and
immunities."  Accordingly, since the FCC's refusal to allow COMSAT to provide
domestic services via Inmarsat was predominantly based on perceived privileges
and immunities, COMSAT now plans to seek authority to provide domestic service.

Competition

   Mobile competes on a global basis in the provision of its voice, fax and data
communications services.  Mobile's maritime, land and aeronautical customers
have access to a broad array of alternative service providers and communications
technologies, including:

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<PAGE>

 .  Inmarsat services provided by other Inmarsat distributors and resellers;

 .  High Frequency (HF), Very High Frequency (VHF) and other forms of maritime
   radio;

 .  C-Band and Ku-Band Satellites (maritime C-Band for cruise ships and VSAT
   systems on land using Ku-Band);

 .  Regional Satellite Systems (AMSC, TMI, and others used for land and
   maritime);

 .  Cellular (used widely on land, and in maritime coastal markets);

 .  New global satellite systems (such as Globalstar); and

 .  Terrestrial-based aeronautical.

   Mobile competes for maritime, land mobile and aeronautical communications
business with other Inmarsat distributors operating land earth stations.  Among
these is IDB Mobile Communications, Inc. (IDB), another U.S. land-earth-station
operator and a subsidiary of Stratos Global Corporation, which became Canada's
Signatory in 1998 and is now an investor in Inmarsat.  IDB provides maritime,
land mobile and aeronautical services through its own U.S. land earth stations
using Inmarsat satellite capacity.

   COMSAT currently competes with IDB/Stratos for U.S. originating shore-to-ship
Inmarsat traffic, and with other Inmarsat operators outside the United States.
MarineSat Communications Network and Marine Telecommunications Network also have
FCC licenses to resell Inmarsat services in competition with COMSAT as
resellers.

   COMSAT competes directly with a number of other Inmarsat service providers
that operate land earth stations around the world and offer many of the same
services as COMSAT.  These include British Telecom, France Telecom, Station 12
(the Netherlands), Telstra (Australia), Stratos (Canada), Deutsche Telekom, KDD
(Japan) and Telenor (Norway).  A total of 16 Inmarsat distributors offer global
service, and a number of others offer service in one or more ocean regions.

   Inmarsat's competitive environment is very different from that of INTELSAT,
in which a given call between two countries is "shared," with each country
accounting for one "half-circuit."  Inmarsat instead relies primarily on a
demand-assigned mode of operation which results in a high degree of intra-system
competition among the more than 30 Inmarsat land-earth-station operators (LESOs)
that compete for traffic generated from the Inmarsat end-user community.  Except
for leased services, each time a call from an Inmarsat mobile terminal is made,
the customer placing the call can select any land earth station that serves the
respective Inmarsat satellite to complete his transaction.  COMSAT and all LESOs
effectively compete for each and every mobile-originated Inmarsat call as it is
made.

                                       15
<PAGE>

   A significant competitor to Inmarsat service providers in the provision of
maritime communications is Very High Frequency (VHF) radio for short distance or
coastal communications, along with Medium Frequency (MF) and High Frequency (HF)
radio for communications over long distances.  In addition to serving the
communications needs of small vessels which operate in coastal waters, maritime
radio can provide a low-cost alternative to Inmarsat services for ships which
must comply with Global Maritime Distress and Safety System (GMDSS) carriage
requirements. Major operators of global maritime radio networks serving the
United States include MariTEL, Globe Wireless, and Maritex.

   Maritime C-Band is used for a large volume of maritime communications traffic
from cruise ships sailing in the Caribbean and Alaskan regions for ship-to-shore
and shore-to-ship communications. Whereas Inmarsat-based operators, such as
COMSAT, were previously the largest communications providers to cruise ships, in
recent years these customers have increasingly been serviced by Maritime C-Band
operators such as MTN that use the satellite capacity of Hughes/PanAmSat,
INTELSAT and others.

   Mobile also faces competition from cellular service.  A significant amount of
maritime traffic in U.S. and nearby waters operates within range of shore-based
cellular, and many of these ships rely heavily on cellular service.  Cellular
competes with Mobile for coastal communications traffic from passenger ships,
fishing vessels and pleasure craft operating in the Caribbean, Alaskan fishing
regions and along the U.S. coastline.  The rapid build-out of cellular networks
around the world also provides competition to Mobile's land mobile services.

   Mobile competes in the maritime and land mobile markets with a number of
regional mobile satellite systems that operate using their own GEO satellites.
These include AMSC (serving North and Central America), TMI (serving the United
States and Canada), MobilSat (Australia/New Zealand) and N-Star (Japan).  Though
COMSAT has been foreclosed by FCC regulations from competing with AMSC and TMI
for land mobile traffic in the United States, all three companies compete for
customers operating in U.S. coastal waters.  AMSC's services are sold through
its exclusive distributor, Stratos Mobile.  Because the United States, pursuant
to the 1997 WTO Basic Telecommunications Agreement, committed to open up its
markets to foreign competition, foreign-licensed satellite operators using
regional satellites such as TMI and its resellers can now offer services in the
United States.

   Mobile expects to compete with Globalstar, a low-earth-orbit (LEO) satellite
provider. Globalstar completed the launch of its 48 satellite constellation in
November 1999, and commenced commercial service in 2000.  Globalstar is a
limited partnership in which Loral Space Communications has a significant
ownership interest.  It plans to provide global service through a network of 38
gateway stations.  Approximately nine of those stations were believed to be in
operation at the end of 1999.

  ICO Global Communications, which plans to provide mid-earth-orbit satellite
services, filed for reorganization under Chapter 11 of the Bankruptcy Code in
1999, but continues to seek external capital to complete the construction and
launch of its satellite system.  During the third quarter of 1999, COMSAT wrote
off its 1.6% direct ownership interest in ICO.  In addition, in the fourth
quarter of 1999, COMSAT wrote off its indirect investment in ICO via Inmarsat,
which

                                       16
<PAGE>

also is an ICO shareholder. For additional discussion concerning the write-off
of COMSAT's investment in ICO, see note 5 to the financial statements.

   Mobile also faces competition from terrestrial radio networks to provide
aeronautical communications services.  Most aeronautical communications in the
United States rely on terrestrial radio networks operated by GTE Airfone, AT&T
Wireless and ARINC.  Satellite-based systems are less frequently used for such
communications and represent a smaller segment of the overall aeronautical
communications services market.

Revenues

   Approximately 20% of COMSAT's consolidated revenues in 1999 were derived from
Mobile (compared to 27% in 1998 and 30% in 1997).  No single customer of Mobile
provided more than 10% of COMSAT's consolidated revenues in 1999.  See Note 15
to the financial statements for additional business segment information.

COMSAT INTERNATIONAL

Services

     During 1999, COMSAT International began to shift its focus from offering
individualized digital network solutions to business clients and carriers to
providing virtual private networks operating on shared platforms utilizing the
Internet protocol.  While offering its traditional dedicated network services
along with the virtual network functionality in selected emerging markets,
International continues to explore international telecommunications
opportunities particularly in those markets where its growing list of
multinational corporate customers plan to expand their operations.
International's customers are typically local, indigenous large and medium-sized
corporations, national branches of multinational corporations and major
telecommunications carriers and consortia.

     International operated in 11 countries located in Latin America, Asia and
Europe in 1999.  International's companies generally are wholly- or majority-
owned, with one exception - COMSAT Max Limited, International's operating
company in India.  The following table shows the name of each of International's
operating companies, the country in which each company operates, and
International's percentage ownership of that company as of December 31, 1999.

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<PAGE>

International                                                        Ownership
Company                                     Country                  Percentage
-------                                     -------                  ----------

BelCom, Inc.                                Russian Federation & CIS    100%
COMSAT Argentina, S.A.                      Argentina                   100
COMSAT Asia Incorporated                    China                        61
COMSAT de Colombia, S.A.                    Colombia                    100
Communicaciones Satelitales de Colombia     Colombia                    100
COMSAT Brasil Ltda                          Brazil                      100
COMSAT de Guatemala, S.A.                   Guatemala                   100
COMSAT Max Limited                          India                        49
COMSAT Mexico S.A. de C.V.                  Mexico                      100
COMSAT Peru, S.A.                           Peru                        100
COMSAT Digital Services                     Turkey                      100
COMSAT Telecommunications Services          Turkey                       64
COMSAT Venezuela                            Venezuela                   100

     International launched a change in its product offerings in 1999
emphasizing virtual private networks operating via the Internet protocol.  To
pursue this product shift in India, International chose to sell a 1% stake in
its COMSAT Max Limited venture to its Indian partner, Max, in order to comply
with the Indian regulatory requirement that Internet providers be majority-
Indian owned.

     In 1999, International acquired the 15% stake owned by Sumitomo in COMSAT
Digital Services, which gives it 100% ownership, as it establishes itself as an
international Internet services provider.

     During 1999, International introduced GlobalWay, a fully interconnected
regional network for Latin America.  The network, using COMSAT Linkway 2000
equipment developed by COMSAT Laboratories, offers full-mesh connectivity among
the major Latin American business centers, such as Buenos Aires, Bogota,
Caracas, Lima, Sao Paulo and others, and with the United States via COMSAT's
Clarksburg, Maryland teleport.  Because of the mesh architecture, delays
associated with traditional "hub-and-spoke" designs are eliminated.

     GlobalWay  also offers bandwidth on demand, a capability essential in the
corporate world of ever expanding high speed data networks, and a full range of
protocol offerings such as Frame Relay, ISDN, SS7 and the Internet Protocol.

     International offers its customers a "one-stop shopping" bundle of
services.  International employs various technologies in providing services to
customers, including satellite, microwave, fiber optic and local wireless
solutions.  Besides the Internet protocol, which is increasingly becoming the
standard offering for International, ATM, frame relay and other communications
protocols also are available.

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<PAGE>

     In servicing its customers' applications, International provides a wide
range of service options from basic provision and maintenance of the customer's
network to full management of all network elements including router and facility
management.  On some occasions, customers have "outsourced" their entire network
design, implementation and management to International.  Customer service is
available in each of International's country operations which provides network
monitoring, testing and help desk service 24 hours per day, 7 days per week.

     Apart from the recently introduced GlobalWay  service, International has
the following family of product offerings which are available in each
International company, subject to local regulations:

 .  COMSATLink - services that assure a constant dedicated circuit between
   locations for the transmission of voice, data and video communications.
   Customers use the service for applications requiring LAN interconnection,
   Internet access, and voice trunking both domestically and internationally.

 .  COMSATNet - a service connecting multiple locations to a central host
   location or with each other. Typical applications are point-of sale networks,
   credit card verification, banking, lottery, Internet access, inventory
   management and others. A wide range of transmission speeds is available both
   domestically and internationally.

 .  COMSATCast - an effective solution for customers having one-way (broadcast)
   data, audio and video requirements. Transmission from a central location can
   be sent to many locations simultaneously for applications such as the
   distribution of financial market data, news, weather data radio programming,
   corporate training and television programming.

 .  COMSATDVnet - a Dynamic Virtual Network service that takes advantage of
   broadband technologies and flexible, cost-effective bandwidth allocation to
   bring high-performance data services tailored to a customer's network and
   management needs. Uses include WAN and LAN interconnections, Internet access,
   remote database access, file transfer and sharing, E-mail, E-commerce,
   virtual private networks, packetized voice and video, order entry systems and
   more. Speeds range from 64kbps to 45mbps.

 .  COMSATWeb - delivers an assured gateway to the Internet in two ways: by
   providing local content via local networks and international content through
   our international access nodes, which are directly connected to the World
   Wide Web. COMSATWeb also provides a platform for corporate users to allow CI
   to host their company's content and to enable other Internet applications,
   such as E-commerce and public VPNs.

   International has direct sales personnel in each of its operations.  In some
of the larger countries, marketing agreements have also been established with
various companies to provide additional geographic coverage of the market.

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<PAGE>

   International's target market consists of corporate clients, both national
and international, Internet service providers (ISPs) and telecommunications
carriers who need local presence for provision of corporate networks.

Regulation of International

   International's companies operate in various developing countries and are
subject to regulation by the local regulatory authorities in those countries.
Because the regulatory environment in those countries is rapidly evolving as the
local economies are developing, International's companies face increasing
business uncertainties which could have an adverse effect on their operations in
those countries.

Competition

   International's companies operate in numerous and diverse markets.
Competition in these markets tends to be fragmented.  Competitors are different
in each region and in some cases, in each country in which International
operates.  The degree of regulation and the level of competition in these
countries varies considerably.  In some countries there is full competition, and
in others competition is limited by law.  The competitive conditions faced by
each company are the result of differing and changing regulatory policies and
economic conditions.  In those countries that have not yet undergone a
substantial liberalization of their telecommunications laws, International's
principal competitor is typically a version of the local Postal, Telegraph and
Telephone administration (PTT), together with a limited number of companies that
provide telecommunications services similar to those offered by International.
In countries that have liberalized their telecommunications laws, International
typically faces greater competition than in less liberalized markets.

   International faces certain operational risks inherent to the countries in
which it operates.  These risks are typical of emerging markets and include
changes in government regulations and licensing requirements, tariffs, taxes,
sanctions and other trade barriers, exchange controls, bureaucratic impediments,
political, social and economic instability, inflation, devaluation, interest
rate and exchange rate fluctuations.  In 1999, economic difficulties in Asia,
Russia and Brazil adversely affected International's operations in those
countries.  There can be no assurance that the recent economic difficulties
faced in Asia, Russia, Brazil and elsewhere, or any future economic
difficulties, or any other risks enumerated above or otherwise, will not
adversely impact International's existing or prospective customers, thereby
affecting International's ability to generate revenues or otherwise having a
material adverse affect on International's financial results and condition.

Revenues

   Approximately 18% of COMSAT's consolidated revenues in 1999 were derived from
International (compared to 18% in 1998 and 16% in 1997).  No single customer of
CI provided more than 10% of COMSAT's consolidated revenues in 1999. See Note 15
to the financial statements for additional business segment information.

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<PAGE>

COMSAT LABORATORIES

Technology Consulting and Products

     COMSAT Laboratories provides technical consulting support and advanced
communications products to customers worldwide.  Technical consulting activities
encompass all aspects of satellite systems and technology, including the
analysis, design, and specification of satellite ground and space systems, and
the development of communications and network systems, in-orbit test facilities,
and specialized onboard satellite components.   COMSAT Laboratories also
designs, develops, licenses and sells communications products and software for
satellite access, networking applications and satellite system planning and
management. In addition, COMSAT Laboratories conducts research and development
(R&D) on a broad range of telecommunications devices, subsystems, transmission
systems, technologies and techniques in support of other COMSAT businesses.

     Major customers include telecom equipment companies (e.g., Ericsson, Nokia,
Matra Marconi, Lucent, Alcatel, and Vertex),  service providers (e.g., AT&T,
Telespazio, Bell South, Teleglobe, IMPSAT and the Indian Department of
Telecommunications),   U.S. and foreign government agencies (e.g., U.S. Army
CECOM, NASA, Joint Battle Command, U.S. Defense Information Systems Agency and
the U.K. Ministry of Defense), satellite system operators (e.g., INTELSAT,
Eutelsat, Inmarsat, ICO,  New Skies and Telesat Canada) and development stage
Ka-Band satellite systems (e.g., Astrolink, and ISKY.NET).

     COMSAT Laboratories won external contracts with a total value of $55
million in 1999.  Major new contracts awarded or begun in 1999 include: a
contract with Logicon for the U.S. Army CECOM Common Network Planning System; a
contract with the U.S. Army for the Satellite Simulator; and a contract with
Matra Marconi for a satcom modem.  At December 31, 1999, COMSAT Laboratories'
backlog of orders totaled $58.8 million, as compared to $50.5 million at
December 31, 1998.

     On-going contracts being performed in 1999 include: a contract with
Ericsson to design and develop the Astrolink Network Control Center; a contract
with INTELSAT to deliver the New Time Division Multiple Access (TDMA)
Infrastructure; a contract  with Ericsson to design and develop the HPN ICONET
ground facilities subsystems; a contract with NASA to provide operation and
maintenance support for the ACTS (Advanced Communications Technology Satellite)
program; and a variety of technical consulting contracts for INTELSAT, Inmarsat,
ICO and other governmental and private industry customers.

     COMSAT Laboratories sells the Linkway 2000(TM) product,  a bandwidth-on-
demand, multiservice mesh networking terminal.  The Linkway 2000 product
supports five advanced networking protocols: IP, ISDN, SS7, ATM and Frame Relay.
Telecommunications carriers can use the Linkway 2000 product to extend
international voice and data networks into remote locations that do not
currently have service. Internet service providers can use this product to

                                       21
<PAGE>

more easily connect countries throughout the world to the U.S. Internet
backbone. The product can also be used by multinational corporations to network
their offices worldwide.

     COMSAT Laboratories incurred research and development expenditures of $4.8
million in 1999, an increase of $1.6 million from 1998.  These expenditures were
largely attributed to the development of its Linkway broadband satellite
networking product.

Revenues

     Approximately 9% of COMSAT's consolidated revenues in 1999 were derived
from the Laboratories (compared to 7% in 1998 and 6% in 1997).  See Note 15 to
the financial statements.

DISCONTINUED OPERATIONS

   During the second quarter of 1997, the Corporation began accounting for the
operations of both Ascent Entertainment Group, Inc. and substantially all of
COMSAT RSI, Inc. (CRSI) as discontinued operations.  COMSAT distributed its
80.67% ownership interest in Ascent to COMSAT's shareholders on June 27, 1997.
On June 25, 1998, COMSAT completed the sale of substantially all of CRSI to a
subsidiary of TBG Industries, Inc. for net cash proceeds of approximately $111.9
million, after adjusting for changes in intercompany loans and advances.  The
sale of substantially all of the assets and liabilities of JEFA Wireless
Systems, a subsidiary of CRSI, was completed in a separate transaction in
February 1998.  COMSAT has agreed to indemnify the purchasers of CRSI and JEFA
against certain losses (see note 7 to the financial statements).

   COMSAT also has retained the long-term contract for the completion of the 100
meter radio astronomy telescope at Green Bank, West Virginia, including a $29
million claim for work performed in connection with the Green Bank contract,
which is currently in arbitration (see "Item 3 - Legal Proceedings" and Note 7
to the financial statements).

   COMSAT also has retained Electromechanical Systems, Inc. (EMS), a former
subsidiary of CRSI.  EMS designs, manufactures and installs multi-axis
positioning control units (pedestals) for precision tracking and pointing for
air traffic control, weather, radar, communication and surveillance equipment.
EMS also provides repair and restoration service for various antenna pedestals
for its customers.  More than 90% of EMS's current business is with military and
government customers, nearly all in the U.S.  EMS and the Corporation have been
named as defendants in a pending qui tam lawsuit under the Civil False Claims
Act.  There is also a separate criminal investigation into the same allegations.
See "Item 3: Legal Proceedings" and Notes 7 and 11 to the financial statements.

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<PAGE>

INVESTMENTS

Inmarsat

     Inmarsat completed its privatization on April 15, 1999.  In 1999, we began
using the equity method of accounting to report our 22.2% ownership interest in
the new company.  See Notes 1 and 5 to the financial statements.

New Skies

   On November 30, 1998, INTELSAT transferred five in-orbit satellites and a
construction contract for a sixth satellite to New Skies.  New Skies, which is
headquartered in the Netherlands, is a separate company that is independent of
INTELSAT.  As of December 31, 1999, COMSAT directly owned 16.6% of New Skies.
See Note 5 to the financial statements.  In February 2000, INTELSAT distributed
its 10% direct ownership in New Skies to its Signatories.  As a result, COMSAT
now owns 18.6% of New Skies.

ICO Global Communications

     ICO Global Communications (Holdings) Limited filed for Chapter 11
bankruptcy on August 27, 1999. Prior to the bankruptcy filing, COMSAT directly
owned approximately 1.6% of ICO.  Inmarsat also was an investor in ICO. As a
result of the bankruptcy filing, COMSAT wrote off its 1.6% direct ownership
interest in ICO during the third quarter of 1999.  Subsequently, Inmarsat wrote
off its investment in ICO in the fourth quarter of 1999.  See Note 5 to the
financial statements.  Under ICO's proposed recapitalization plan, all existing
ICO shareholders, including COMSAT and Inmarsat, would be substantially diluted
and would continue to hold only approximately 1% of ICO's equity in the
aggregate.

                                       23
<PAGE>

Item 2:   Properties

COMSAT PROPERTIES

Bethesda, Maryland Headquarters

   At year end 1999, COMSAT's headquarters (as well as the headquarters for
World Systems, Mobile and International) were located in Bethesda, Maryland.  We
lease the headquarters building from a limited partnership in which we hold a
50% interest, primarily as a limited partner.  The managing general partner also
owns a 50% interest in the partnership.  An affiliate of the managing general
partner owns the building site and has leased this site to the partnership.  In
1993, we entered into a 15-year lease with the partnership for the building.
See Note 10 to the financial statements.

Clarksburg, Maryland Facility

   In 1997, we sold the office buildings and land at Clarksburg, Maryland that
serve as the headquarters for the Labs.  We leased back the office buildings and
the adjoining land for a ten-year lease term.  See Note 4 to the financial
statements.  We operate earth stations on the leased land that are used by World
Systems to provide tracking, telemetry and control services to INTELSAT and by
COMSAT Digital Teleport to provide satellite services to customers and to house
satellite control and teleport facilities.

Other Properties

   We also own or lease 10 properties in the United States.

   We own earth stations at Santa Paula, California and Southbury, Connecticut,
and lease an earth station in Malaysia.  Mobile uses these properties to provide
mobile communications services.  We also own an earth station at Paumalu, Hawaii
that World Systems uses to provide satellite tracking, telemetry and control
services to INTELSAT.

   COMSAT General owns 86.3% of the MARISAT Joint Venture, which operates the
MARISAT F-2, one of three satellites launched in 1976.  The MARISAT F-1 and F-3
ceased commercial operations in 1996.  COMSAT General also owns the COMSTAR D-4
satellite (launched in 1981) with capacity leased to Mobile and COMSAT
Government Systems, LLC, a subsidiary of Lockheed Martin.

   International leases or owns facilities in each of the countries in which it
operates.

   We believe that our properties are suitable and adequate for our current
business operations.

                                       24
<PAGE>

INTELSAT Satellites

   Our property accounts include our pro rata share of INTELSAT satellites.  The
INTELSAT satellites currently in use and under construction are described below.
As a result of the INTELSAT restructuring, five INTELSAT satellites and a
contract to construct a six satellite were transferred to New Skies on November
30, 1998.  The transferred satellites are not included in the description below.

   In 1999, two INTELSAT V satellites which had reached the end of their design
lives were deorbited.  There is one INTELSAT VA satellite continuing to operate
in the INTELSAT system.  This satellite has also reached the end of its design
life and is operating in an inclined orbit.  The capacity of the INTELSAT VA is
17,000 voice circuits, or 57 television channels (depending on the configuration
of the satellite payload).  The satellite was built by a predecessor of Space
Systems/Loral.

   The INTELSAT VI series consists of five satellites, constructed by Hughes
Aircraft Company, now a subsidiary of General Motors Corporation. These
satellites have an average capacity of at least 24,000 bearer circuits or 87
television channels. The INTELSAT VI satellites, the last of which was launched
in October 1991, currently provide primarily backbone public switched network
(PSN) services in the Atlantic and Indian Ocean regions.

   The INTELSAT VII series consists of five satellites constructed by Space
Systems/Loral.  These satellites have an average capacity of at least 17,050
bearer circuits or 62 television channels (or a capacity of 62 36MHz units with
a typical minimum power range of 29 to 34.5 decibels relative to one watt (DBW)
at C-band and 44 DBW at Ku-band depending on the beam). The last INTELSAT VII
satellite was launched in June 1996. These satellites were designed to replace
the V/VA satellites. They provide improved utilization and flexibility, improved
radio frequency power, enhanced Ku-band coverage and increased C-band
connectivity compared to the V/VA satellites.

   The INTELSAT VIIA series, also constructed by Space Systems/Loral, consists
of two satellites having an average capacity of at least 19,250 bearer circuits
or 70 television channels (or a capacity of 70 36MHz units with a typical
minimum power range of 29 to 36 DBW at C-band and 42.7 to 45 DBW at Ku-band
depending on the beam). Of the three INTELSAT VIIA satellites constructed, the
first INTELSAT VIIA satellite was successfully launched in May 1995; the launch
of the second VIIA, in February 1996, was a launch failure; and the third VIIA
was successfully launched in March 1996. These satellites provide an enhancement
over the VII satellites to meet increased demand for high power Ku-band
capacity. New cross-strapped connectivity from Ku-band to C-band allows the
provision of satellite news gathering (SNG) service using a roving Ku-band Spot
Beam in the uplink.

   The INTELSAT VIII series consists of three satellites constructed by Lockheed
Martin Corporation.  These satellites have an average capacity of 21,000 bearer
circuits or 76 television channels (or a capacity of 76 36MHz units with a
typical power range of 29 to 34.5 DBW at C-band and 44 DBW at Ku-band depending
on the beam). All three INTELSAT VIII satellites were

                                       25
<PAGE>

successfully launched in 1997. They were designed primarily to complement the
INTELSAT VI satellites and meet growing demand for C-band services. The INTELSAT
VIII series satellites provide new television broadcast mode capability with
simultaneous up link from the Northeast zone beam and down link from three West
zone beams. The INTELSAT VIII series satellites also provide expanded SNG
service with the capability to cross connect any of the Ku-band spot beams to
any of the global beams in certain transponders.

   The INTELSAT VIIIA series consists of one satellite constructed by Lockheed
Martin Corporation.  The satellite has an average capacity of at least 11,600
bearer circuits or 38 television channels (or a capacity of 42 36MHz units with
a power range of 39.7 to 42 DBW at C-band and 50.4 to 51.7 DBW at Ku-band
depending on the beam).  The INTELSAT VIIIA was launched in June 1998 and is
designed for users requiring high power together with a wide coverage area in C-
band for the provision of services such as video, VSAT applications and PSN.  It
uses complex state-of-the-art antenna technology to provide improved coverage of
land areas of North and South America.

   The INTELSAT IX series currently consists of seven satellites.  As of
December 31, 1999, the procurement of seven satellites had been approved by the
INTELSAT Board of Governors.  These spacecraft are to be built by Space
Systems/Loral and are intended to replace the INTELSAT VI satellites between
2001 and 2002.  The INTELSAT IX satellites are expected to have an average
capacity of 98 36MHz transponders with a typical minimum power range of 31 to 47
DBW depending on the beam. The satellites will provide primarily high
connectivity backbone public network services in the Atlantic and Indian Ocean
regions.  The INTELSAT IX satellites will be INTELSAT's largest capacity
satellites with advanced communications and RF performance.

   In addition, in the first quarter of 2000, the INTELSAT Board of Governors
approved the procurement of two additional satellites that will be known as the
NI-Alpha series.  The spacecraft are being built by Matra Marconi Space. The NI-
Alpha satellites are expected to provide up to 106 units of capacity with a
typical minimum power range from 32 to 52 DBW depending on the beam. The
satellites are being designed to expand the capacity available to the growing
Internet and video markets in the Americas and Western Europe beginning in 2003.

Item 3:   Legal Proceedings

   COMSAT and its subsidiaries are a party to various lawsuits and arbitration
proceedings and are subject to various claims and inquiries, which generally are
incidental to the ordinary course of their business.  The outcome of legal
proceedings cannot be predicted with certainty.  Based on currently available
information, however, management does not believe that the outcome of any matter
which is pending or threatened, either individually or in the aggregate, will
have a material adverse effect on the consolidated financial condition of
COMSAT.  Nevertheless, the outcome of such matters could materially affect
consolidated results of operations in a given year or quarter.

     In January 1999, the U.S. Department of Justice announced that it intended
to join a lawsuit filed by former employees of Electromechanical Systems, Inc.
(EMS) under the qui tam

                                       26
<PAGE>

provisions of the Civil False Claims Act. We acquired EMS in 1994 as part of our
acquisition of Radiation Systems, Inc., which became part of COMSAT RSI, Inc. We
began accounting for COMSAT RSI as a discontinued operation in 1997 and retained
EMS when we sold COMSAT RSI in 1998 (see Note 7 to the financial statements).
The lawsuit names EMS, COMSAT and several current and former EMS employees and
seeks potential damages estimated at up to $40.0 million. The Department of
Justice has been granted a stay of the lawsuit pending the outcome of a separate
criminal investigation into the same allegations that is currently being
conducted by the U.S. Attorney's office in Tampa, Florida. We intend to
vigorously defend this matter but cannot predict the ultimate outcome or
estimate the amount of liability that could result from any civil or criminal
sanctions the government may seek.

   In 1995, COMSAT entered into a five-year agreement with News Corporation to
provide satellite services beginning in 1996.  In March 1996, News Corporation
unilaterally terminated this agreement.  The Corporation then commenced a
lawsuit against News Corporation to recover damages arising out of the alleged
breach of contract, and against PanAmSat Corporation and Televisa for allegedly
inducing the breach.  News Corporation has asserted a counter claim for return
of the $5 million deposit it originally paid.  On December 29, 1999, the U.S.
District Court for the Central District of California issued an order granting
summary judgment for the defendants and dismissing COMSAT's claims. The issue of
News Corp.'s counter-claim is still before the District Court.  COMSAT currently
is engaged in settlement discussions with the defendants to resolve the matter
on terms that would be favorable to COMSAT.  If the matter is not settled,
COMSAT plans to appeal the District Court's summary judgment order.

   Since November 1997, COMSAT has been in a dispute with IDB Mobile
Communications, Inc. and its parent, Stratos Global Corporation of Canada, about
IDB/Stratos' refusal to pay COMSAT as U.S. Signatory to Inmarsat for the
satellite capacity used by their U.S. land earth stations.  Stratos became
Canada's Signatory to Inmarsat in 1998.  COMSAT contends that IDB is required,
under contract and by U.S. law (including the Maritime Satellite Act of 1978),
to pay solely COMSAT for all U.S. satellite capacity utilized prior to
Inmarsat's privatization in April 1999.  IDB/Stratos contend they were permitted
to secure capacity from foreign Signatories. In February 1998, they asked the
FCC for a declaratory ruling to that effect, which COMSAT opposed; the petition
remains pending.  In January 1998, the Corporation sued IDB for breach of
contract.  The court dismissed the contract case but ruled that COMSAT could
seek to enforce its statutory rights at the FCC.  COMSAT's first appeal of this
ruling was dismissed on procedural grounds.  COMSAT has filed a second appeal
seeking a hearing on the merits of its contract claim.  That appeal is still
pending.  In January 1999, the Corporation filed a complaint at the FCC seeking
damages against IDB, which remains pending.  Also pending at the FCC is a
complaint filed against COMSAT by IDB/Stratos in September 1997 challenging the
Corporation's rates for certain Inmarsat services.

   In June 1999, after a competitive procurement, the U.S. Navy awarded a
contract to Mobile for leased-channel high-speed data satellite communications
services.  A competing bidder, Stratos Mobile Networks (a subsidiary of Stratos
Global), sued in the U.S. Court of Federal Claims to challenge the award.  The
court initially denied injunctive relief, and COMSAT began performing the
contract.  In September 1999, however, the court concluded that Stratos had been
deprived of a fair opportunity to bid, because of a latent ambiguity in the
solicitation criteria.  The court

                                       27
<PAGE>

ordered a recompetition of the contract to be held by January 2000, with the
winner to begin performing the contract in January 2001. Both COMSAT and the
Navy appealed that decision, and the case is now pending in the Court of Appeals
for the Federal Circuit. In the meantime, the recompetition has been completed,
and the contract was awarded to Stratos. In March 2000, COMSAT filed suit in
United States District Court to overturn the results of the recompetition. If
the recompetition is not overturned, service under the contract will be
transitioned to Stratos on January 1, 2001. The contract is an indefinite
quantity and indefinite deliverables contract. Thus, even if the contract is
transferred to Stratos, the Navy will no longer be obligated to obtain service
through Stratos once the minimum service commitment to Stratos is satisfied.
Mobile plans to continue to compete vigorously for the Navy's business.

   COMSAT retained the long-term contract for the completion of the 100 meter
radio astronomy telescope at Green Bank, West Virginia.  COMSAT also retained
CRSI's $29 million claim for work performed under and relating to the contract,
which is currently in arbitration. The prime contractor has filed a counterclaim
seeking $13 million in damages for delay.  The claim and counterclaim are
currently in arbitration.  See Note 7 to the financial statements.  There can be
no assurance that COMSAT will be successful in collecting all or any portion of
this claim.

  In addition to the matters described above, see Note 11 to the financial
statements for a description of certain additional legal proceedings, which are
either pending or known to be contemplated by governmental authorities, to which
COMSAT or any of its subsidiaries is a party.

                                       28
<PAGE>

Item 4:  Submission of Matters to a Vote of Security Holders

     None.
                                    PART II

Item 5:  Market for Registrant's Common Equity and Related Stockholder Matters

     On December 31, 1999, there were 53,123,342 shares of common stock
outstanding.  Of this number, 25,976,047 were Series II shares  and 27,147,295
were Series I shares.  Series II shares are shares held by communications common
carriers authorized to hold shares by the FCC.  Series I shares are held by
other persons.  As of December 31, 1999, the Corporation had 26,286 Series I
holders and 32 Series II holders of record.

     The principal market for COMSAT's common stock is the New York Stock
Exchange, where it is traded under the symbol "CQ."  COMSAT's common stock is
also listed on the Chicago Stock Exchange and the Pacific Stock Exchange in the
United States and on the Swiss Exchange.

     The Corporation's transfer agent, registrar and dividend disbursing agent
is The Bank of New York, 101 Barclay Street, New York, New York.

     The high and low sales prices of, and the dividends declared on, each share
of COMSAT common stock for the last two years are as follows:

<TABLE>
<CAPTION>
Calendar Year 1999            High          Low          Dividend
------------------            ----          ---          --------
<S>                         <C>           <C>          <C>
First Quarter               36 11/16      27                .05
Second Quarter              35 1/8        27 13/16          .05
Third Quarter               37 1/16       26 5/8            .05
Fourth Quarter              29 15/16      15 3/8            .05


<CAPTION>
Calendar Year 1998            High          Low          Dividend
------------------            ----          ---          --------
<S>                            <C>           <C>          <C>
First Quarter               36            21 5/8            .05
Second Quarter              42 3/4        27 3/4            .05
Third Quarter               36 7/8        21 13/16          .05
Fourth Quarter              39 5/8        32 7/16           .05
</TABLE>

                                       29
<PAGE>

Item 6: Selected Financial Data

<TABLE>
<CAPTION>
In thousands, except per share amounts             1999         1998        1997         1996        1995
------------------------------------------------------------------------------------------------------------
<S>                                             <C>          <C>         <C>          <C>         <C>
Summary of Operations
Revenues                                        $  618,266   $  616,469  $  562,651   $  545,100  $  507,687
Operating expenses                                 556,171      556,967     480,683      437,875     387,873
Operating income                                    62,095       59,502      81,968      107,225     119,814
Income (loss) from continuing operations            (2,566)      26,417      28,568       36,197      43,507
Net income (loss)                                   (2,566)      26,417     (64,446)       8,622      37,817
Earnings (loss) per share-assuming dilution:
   Income (loss) from continuing operations          (0.05)        0.50        0.57         0.74        0.91
   Net income (loss)                                 (0.05)        0.50       (1.29)        0.18        0.79

Balance Sheet Data
Total assets                                     1,651,724    1,790,798   1,894,775    2,097,286   2,022,247
Long-term debt                                     408,979      446,832     461,960      578,379     590,378
Stockholders' equity                               597,705      659,040     586,271      841,817     839,433

Dividends
Dividends paid                                      10,562       10,393      16,975       37,698      36,874
Dividends paid per share                              0.20         0.20        0.35         0.78        0.78
Distribution of Ascent Entertainment Group,              -            -     194,633            -           -
   Inc. shares
</TABLE>

                                      30
<PAGE>

Item 7:   Management's Discussion and Analysis of Financial Condition and
          Results of Operations


ANALYSIS OF OPERATIONS

Consolidated Operations

Continuing Operations

Revenues

     Consolidated revenues in 1999 were $618 million, which was slightly above
1998.  Lower revenues in Mobile Communications and International were more than
offset by increases in World Systems and the Laboratories.  Consolidated
revenues in 1998 were $616 million, an increase of 10% as compared to the
previous year.  This improvement was the result of increases in all business
segments.

Operating Income

     Operating income in 1999 was $62 million, or 4% higher than 1998.  In 1999,
we changed how we account for our investment in Inmarsat from pro-rata
consolidation to the equity method of accounting as a result of the
privatization of Inmarsat.  See Note 1 to the financial statements.  As a result
of this change, operating income in 1999 was lower by $26 million than it
otherwise would have been absent such change.  During 1998, we recorded a $14
million impairment loss related to BelCom (International's company operating in
Russia and the Commonwealth of Independent States).  Exclusive of the 1999
accounting change and the 1998 BelCom impairment loss, operating income in 1999
was $14 million higher than the previous year.  This was primarily the result of
increased operating income in both World Systems and the Laboratories, partially
offset by decreases in both Mobile Communications and International.  In
addition, costs related to the proposed merger with Lockheed Martin Corporation
were $10 million, an increase of $4 million over 1998.

     For 1998, operating income was $60 million, or $22 million below 1997.  The
decrease in operating income was primarily the result of the $14 million BelCom
impairment loss and increased losses in International of $12 million that were
primarily related to operations in Brazil.  In addition, 1998 results included
$6 million of costs related to the proposed merger with Lockheed Martin.
Improvements in operating income in both Mobile Communications and World Systems
totaling $14 million partially offset those items in 1998.

                                      31


<PAGE>

Other Income (Expense), Net

     Other income (expense), net for 1999 was an expense of $27 million, which
compares to income of $13 million in 1998.  During the second half of 1999, we
wrote-off $36 million of direct investments in ICO Global Communications
(Holdings) Limited.  Our 1999 results also include our share of Inmarsat's 1999
net loss of $17 million under the equity method, which includes our share of
Inmarsat's ICO write-off of $35 million.  In addition, during 1999,
International sold its remaining investment in Viatel, Inc. and recorded a $26
million gain, which was $11 million higher than the 1998 gain on Viatel.

     Other income (expense), net for 1998 was income of $13 million, which was
$9 million better than 1997.  This was primarily the result of a $15 million
gain from the sale of Viatel stock and income of $4 million from a settlement
agreement with ICO.  See Note 5 to the financial statements.  In addition, 1998
included a $2 million non-cash write-off of the Laboratories investment in
Superconducting Core Technologies that partially offset those items.

Interest Costs, Net of Amounts Capitalized

     Interest costs, net of amounts capitalized for 1999, were $37 million,
which was $3 million below 1998.  The decrease was primarily related to the
change in accounting related to our investment in Inmarsat.  Inmarsat-related
interest costs of $4 million have been reclassified to equity income.  For 1998,
interest costs, net of amounts capitalized, were $40 million or $2 million lower
than 1997.  The lower interest costs were due to the reversal of $4 million of
previously accrued interest costs related to income taxes (discussed below in
income tax expense) and lower borrowings as a result of the use of the proceeds
from the sale of COMSAT RSI, Inc. to reduce debt.  Lower amounts of interest
capitalized in 1998 due to the completion of satellites under construction
partially offset these decreases.

Income (Loss) Before Income Taxes

     The loss before taxes for 1999 for continuing operations was $2 million,
which compares to income of $32 million for 1998.  Exclusive of the ICO write-
off, income before taxes was $69 million or $37 million above 1998.  This
improvement was primarily the result of improvements in World Systems and the
increased gain on the sale of Viatel stock.  Partially offsetting this
improvement was lower earnings in Mobile Communications.  See "Segment Operating
Results-Mobile Communications."

     Income from continuing operations before taxes and extraordinary item for
1998 was $32 million, or $12 million below the previous year.  This decrease was
principally due to the impairment loss related to BelCom, increased losses in
Brazil, merger costs and the non-recurrence of the gain on the sale of the
Clarksburg property.  The gain from the sale of Viatel stock and improvements in
both Mobile Communications and World Systems partially offset those items.

                                       32
<PAGE>

Income Tax Expense

     Income tax expense for 1999 was $1 million, compared to expense of $6
million for 1998.  In both 1999 and 1998, certain pre-tax losses were non-
deductible for tax purposes, such as specific merger costs.  The tax expense in
1998 was $6 million, which was $10 million below 1997.  In the third quarter of
1998, we favorably resolved a state tax audit and reversed previously accrued
tax and interest costs of $4 million.  In addition, in 1998, we reversed
previously accrued tax and interest costs of $17 million related to federal tax
matters that we determined were no longer required.  See Note 14 to the
financial statements.

Income (Loss) from Continuing Operations before Extraordinary Item

     The loss in 1999 from continuing operations was $3 million, which compares
to income from continuing operations of $26 million in 1998.  Exclusive of the
write-off of our investment in ICO, income in 1999 was $42 million, or $16
million above the previous year.  Income for 1998 from continuing operations was
$26 million, or $3 million below the previous year.

     The loss per diluted share from continuing operations in 1999 was $0.05,
which compares to earnings per share in 1998 of $0.50.  Exclusive of the ICO
write-off, diluted earnings per share from continuing operations were $0.79.
Diluted earnings per share for continuing operations for 1997 were $0.57.  See
Note 12 to the financial statements.

Extraordinary Item

     In 1997, COMSAT repurchased $90 million of its 8.125% notes and $10 million
of its 7.7% medium-term notes.  See Note 8 to the financial statements.  The
extraordinary loss from early extinguishment of debt, net of tax, for 1997 was
$4 million ($0.08 per share).

Discontinued Operations

     During the second quarter of 1997, we began accounting for the operations
of both Ascent Entertainment Group, Inc. and substantially all of COMSAT RSI,
Inc. as discontinued operations.  In 1997, we recorded a loss from discontinued
operations, net of tax, of $89 million ($1.78 per share, fully diluted).  See
Note 7 to the financial statements.

Net Income (Loss)

     The 1999 net loss was $3 million, compared to 1998 net income of $26
million.  Excluding the ICO write-off, net income in 1999 was $42 million, or
$16 million above  1998 net income.  For 1997, the net loss was $64 million.

     The diluted net loss per share for 1999 was $0.05 as compared to earnings
per share for 1998 of $0.50.  The diluted net loss per share for 1997 was $1.29.
See Note 12 to the financial statements.

                                       33
<PAGE>

Segment Operating Results

     We report our operating results in four segments: World Systems, Mobile
Communications, International and the Laboratories.  We evaluate the performance
of our operating segments based on segment income (loss) before taxes and
interest costs.  See Note 15 to the financial statements.


<TABLE>
<CAPTION>
In millions                                     1999      1998      1997
-------------------------------------------------------------------------
<S>                                          <C>       <C>       <C>
REVENUES
--------
Satellite Services:
  World Systems                               $ 342.9   $ 303.1   $ 286.1
  Mobile Communications                         123.0     169.1     167.9
                                            -----------------------------
  Total Satellite Services                      465.9     472.2     454.0
                                            -----------------------------

International                                   108.6     113.3      89.7
Laboratories                                     54.1      42.3      36.4
Eliminations and other                          (10.3)    (11.3)    (17.5)
                                            -----------------------------
  Total                                       $ 618.3   $ 616.5   $ 562.6
                                            =============================

SEGMENT INCOME (LOSS)
---------------------
Satellite Services:
  World Systems                               $ 137.1   $ 113.1   $ 102.7
  Mobile Communications                         (52.2)     31.9      23.8
                                            -----------------------------
  Total Satellite Services                       84.9     145.0     126.5
                                            -----------------------------

International                                     0.1     (21.0)     (8.9)
Laboratories                                     (0.8)     (3.5)     (1.8)
                                            -----------------------------
  Total segment income                           84.2     120.5     115.8

General and administrative expenses             (24.7)    (25.6)    (23.2)
Merger costs                                    (10.3)     (5.5)        -
Interest costs, net of amounts capitalized      (37.2)    (39.8)    (42.1)
Other income (expense), net                     (14.0)    (17.4)     (6.3)
                                            -----------------------------
  Total                                       $  (2.0)  $ (32.2)  $  44.2
                                            =============================
</TABLE>

                                       34
<PAGE>

Satellite Services

     Satellite Services includes both the World Systems and Mobile
Communications operating segments.  World Systems provides satellite capacity
for telephone, data, Internet, video and audio communications services between
the United States and the rest of the world using the global satellite networks
of the International Telecommunications Satellite Organization (INTELSAT) and
New Skies Satellites, N.V.  Mobile Communications provides satellite
telecommunications services for maritime, aeronautical and land mobile
applications, primarily using the satellites of Inmarsat Holdings Limited
(formerly the International Mobile Satellite Organization).  COMSAT is the U.S.
signatory to INTELSAT.

     Satellite Services revenues in 1999 were $466 million, which was 1% below
1998.   For 1998, revenues in Satellites Services were $472 million, an increase
of 4% over 1997.   Satellite Services income before taxes was $85 million in
1999, as compared to $145 million in 1998. The decrease in income before taxes
was the result of the $71 million ICO write-off during the second half of 1999
in Mobile Communications.  Exclusive of the ICO write-off, Satellite Services
income before taxes increased $11 million as compared to the prior year.
Satellite Services profit before taxes in 1998 was 15% better than 1997.

World Systems

     World Systems revenues in 1999 were $343 million, an increase of 13% over
1998.  The improvement in revenues was primarily the result of increased demand
for Internet services and other high-speed data traffic, and our increased
ownership in INTELSAT.  A slight decline in voice revenues partially offset
those increases.  In 1999, we paid $38 million to increase our total ownership
share of INTELSAT from 18.4% to 20.4%.  For 1998, World Systems revenues were
$303 million, or 6% higher than 1997.  The improvement in revenues was primarily
the result of increased demand for private data communication networks and
Internet transmissions, partially offset by declines in voice and video
revenues.

     World Systems segment income in 1999 was $137 million, a 21% improvement
over 1998.  During the third quarter of 1999, World Systems extended the
depreciable lives of the INTELSAT satellites based on the current estimated
useful lives of those satellites.  The change had the effect of increasing World
Systems' segment income by $10 million during the second half of 1999.  The
remainder of the improvement in World Systems segment income was from increased
ownership in INTELSAT, lower operating expenses and revenue growth.  Segment
income in 1998 for World Systems was $113 million, or 10% higher than the
previous year.  The 1998 results include income of $4 million from a settlement
agreement with ICO.  See Note 5 to the financial statements.  The balance of the
improvement in segment income in 1998 primarily was due to higher revenues
offset, in part, by increased depreciation from placing new satellites in
service.

                                       35
<PAGE>

     On November 30, 1998, INTELSAT transferred five in-orbit satellites to New
Skies Satellites.  New Skies, an independent company that was spun off from
INTELSAT, is headquartered in the Netherlands.  In connection with the spin-off,
COMSAT received shares in New Skies.  COMSAT currently owns 18.6% of New Skies.

Mobile Communications

     Inmarsat completed its privatization on April 15, 1999.  In 1999, we began
using the equity method of accounting to report our 22.2% ownership in the new
company.  See Note 1 to the financial statements.  Prior to 1999, we used the
pro rata method of consolidation to report our share of Inmarsat's operating
results.  Under the pro rata method of consolidation, we reported our share of
Inmarsat's revenues (net of the space segment charges that we paid to Inmarsat),
cost of services, depreciation and amortization and interest costs in the
appropriate categories of our income statement.  We now report our proportionate
share of Inmarsat's net operating results as equity income in "Other income
(expense), net" within the Mobile Communications operating segment.  The space
segment charges that we pay to Inmarsat are now reported in cost of services.
Our share of Inmarsat's interest costs and income taxes are now reported within
the Mobile Communications segment.  Prior to 1999, our share of Inmarsat's
interest costs were reported in "Interest costs, net of amounts capitalized" and
taxes related to our income from Inmarsat were reported in "Income tax expense."

     Mobile Communications revenues in 1999 were $123 million, which was $46
million or 27% below 1998.  This was primarily the result of lower analog
telephone traffic, principally due to lower usage in the U.S. Government sector
and lower amounts of carrier traffic.  In addition, reporting Inmarsat's
revenues using the equity method of accounting lowered Mobile Communications
revenues by $18 million in 1999.  For 1998, Mobile Communications revenues were
$169 million, an increase of 1% compared to 1997.  In 1998, Mobile
Communications recorded increased revenues from the contract with the Federal
Aviation Administration on the Wide Area Augmentation System and from traffic
improvements in both digital telephone services and aeronautical services.
Offsetting these improvements were lower sales of Planet 1 terminals and a
decrease in telex revenues.

     On August 27, 1999, ICO filed for Chapter 11 bankruptcy.  As a result,
COMSAT wrote off its $36 million direct investment in ICO during the third
quarter of 1999.  In addition, we also had an indirect investment in ICO through
our equity ownership in Inmarsat, which also is an ICO shareholder.  During the
fourth quarter of 1999, Inmarsat advised COMSAT that it had written off its
investment in ICO.  Accordingly, we recognized this loss in our share of
Inmarsat's net results in the fourth quarter of 1999.  In total, COMSAT recorded
a pre-tax, non-cash write-off during 1999 of $71 million related to its
investments in ICO.

     For 1999, Mobile Communications segment loss was $52 million as compared to
segment income of $32 million in the prior year.  The 1999 loss resulted from
the ICO write-off. Exclusive of the ICO write-off, Mobile Communications segment
income was $19 million, which was $13 million below 1998.  This decline in
segment income from 1998 was due to

                                      36
<PAGE>

lower revenues and reporting our share of Inmarsat interest costs and income
taxes within the Mobile Communications segment. Mobile Communications' 1999
results included interest costs of $4 million and income taxes of $4 million.
Mobile Communications segment income for 1998 was $32 million, which was 34%
better than 1997. The improvement in income was primarily the result of lower
operating costs offset, in part, by increased depreciation from the full-year
impact of new Inmarsat satellites placed in service.

International

     International operates an integrated group of telecommunications companies
that are engaged principally in providing individualized digital network
solutions and value-added services to business clients and carriers in selected
emerging markets.  As of December 31, 1999, International operated in 11
countries worldwide.

     For 1999, International's revenues were $109 million or 4% below the
previous year. The decrease in International's revenues was the result of lower
revenues in Brazil caused primarily by the devaluation of the Brazilian
currency.  The lower revenues in Brazil were offset, in part, by increases in
Argentina, Mexico, Colombia and Turkey.  International's revenues in 1998 were
$113 million, which was 26% higher than in 1997.  The higher revenues were
principally due to growth in Argentina, Brazil and Colombia.

     International's segment income in 1999 was $0.1 million, which compares to
a segment loss of $21 million in 1998.  During 1999 and 1998, International sold
its investment in Viatel, Inc.  This sale resulted in a gain in 1999 of $26
million and in 1998 of $15 million.  In addition, International recognized in
1998 a non-cash impairment loss at BelCom of $14 million.  See Note 6 to the
financial statements.  Exclusive of the gains on the sale of Viatel and the
impairment loss, International's 1999 segment loss was $26 million, compared to
$22 million in 1998.  The decline in 1999 was due in part to fixed asset
adjustments in China and Brazil.

     International's segment loss in 1998 was $21 million, as compared to a
segment loss of $9 million in 1997.  In the third quarter of 1998, International
recorded the BelCom impairment loss of $14 million.  In addition, International
had a $15 million gain from the sale of Viatel stock.  Exclusive of the BelCom
impairment and the gain on the sale of stock, International's loss was $22
million, as compared to $9 million in 1997.  The increased segment losses were
primarily due to higher depreciation, contract losses in Brazil, increased
losses in BelCom and start-up costs in Mexico.

                                      37
<PAGE>

Laboratories

     COMSAT Laboratories provides technical consulting services and develops
advanced communications technologies and products for satellite access and
networking applications.

     Revenues at the Laboratories in 1999 were $54 million, or 28% higher than
the previous year.  The improvement was from increases in both technical
consulting and product sales.  The Laboratories' revenues for 1998 were $42
million, which was 16% higher than 1997.  This increase was due to improvements
in technical consulting revenues.

     The segment loss before taxes in 1999 was $1 million, which was $3 million
better than 1998.  The 1998 segment loss included the non-cash $2 million write-
off of the Laboratories' investment in Superconducting Core Technologies, Inc.
Absent this write-off, the Laboratories segment results year-over-year improved
$1 million.  In 1998, the Laboratories segment loss was $4 million, compared to
$2 million in 1997.


OUTLOOK

     Many of the statements that follow are forward looking and relate to
anticipated future events and operating results.  You should consider the
factors described under "Forward-Looking Statements - Safe Harbor Provisions"
in evaluating the forward-looking statements in this report.

Business Combination with Lockheed Martin

     COMSAT entered into an Agreement and Plan of Merger with Lockheed Martin on
September 18, 1998.  Under that agreement, Lockheed Martin agreed to acquire all
of COMSAT's outstanding common stock in a two-step transaction.

     The first step, a cash tender offer to purchase up to 49% of COMSAT's
common stock at a price of $45.50 per share, was completed on September 18,
1999.  As a result, Lockheed Martin now owns approximately 49% of COMSAT's
common stock.

     The second step is the merger of COMSAT with a wholly-owned subsidiary of
Lockheed Martin.  In the merger, shareholders will receive one share of Lockheed
Martin common stock for each share of COMSAT common stock that they own.

     The Open-Market Reorganization for the Betterment of International
Telecommunications Act (commonly referred to as the "ORBIT Act"), which was
passed by Congress and signed by the President in March 2000, removes the
ownership limitation on COMSAT's common stock and will permit the merger to be
completed following receipt

                                       38
<PAGE>

of required regulatory approvals and satisfaction of closing conditions.  Other
provisions of the ORBIT Act are described under "Legislative and Regulatory
Developments."  COMSAT expects that the required regulatory approvals will be
received and other closing conditions will be satisfied so that the merger can
be completed in the third quarter.

     Completion of the merger remains subject to satisfaction of the conditions
set forth in the merger agreement.  The principal remaining conditions are:

 .    Receipt of all consents and approvals from governmental authorities
     (including the FCC and antitrust authorities); and

 .    There is no event that has had or would reasonably be expected to have a
     significant adverse effect on COMSAT.

     Before the merger can be completed, Lockheed Martin must obtain FCC
approval for the transfer of control of COMSAT.  In addition, Lockheed Martin
must file notices under the Hart-Scott-Rodino Antitrust Improvements Act with
the Federal Trade Commission and the Department of Justice to report its
secondary acquisition, via the merger, of certain minority interests that COMSAT
currently holds (e.g., Inmarsat and New Skies).  We expect that the FCC and
antitrust authorities will grant the final required approvals and consents.
Their response time could affect the estimated time frame for closing the
merger.  We do not believe that passage of the ORBIT Act will have a significant
adverse effect on COMSAT.  As discussed under "Legislative and Regulatory
Developments," certain of the actions that INTELSAT is contemplating in response
to passage of the ORBIT Act, if undertaken, might affect that conclusion.  There
can be no assurance that a subsequent event will not occur which could
reasonably be expected to have a significant adverse effect on COMSAT.  If the
merger is not completed by September 18, 2000, either Lockheed Martin or COMSAT
may terminate the merger agreement.

     For the merger to qualify as a tax-free reorganization, the value of the
Lockheed Martin common stock exchanged for COMSAT common stock in the merger
must be at least 40% of the total consideration received by COMSAT shareholders
in the tender offer and merger combined, assuming that the tender offer and
merger are treated as a single integrated transaction for U.S. federal income
tax purposes.  COMSAT shareholders that tendered shares in the tender offer
received $45.50 per share in cash.  As a result, if the price of Lockheed Martin
common stock is less than $29.14 per share on the last full trading day prior to
consummation of the merger, the consideration to be received by COMSAT
shareholders in the merger will be taxable for U.S. federal income tax purposes
to the extent of any applicable gain or loss.  If the merger had been
consummated as of March 15, 2000, based on the price for Lockheed Martin common
stock as of that date and assuming integration of the tender offer and merger,
the merger would not have qualified as a tax-free reorganization, and COMSAT
shareholders would have recognized gain or loss on the exchange of shares in the
merger.  The tax consequences of the merger to you will depend on your own
situation.  Therefore, you should consult your tax advisors for a full
understanding of these tax consequences.

                                       39
<PAGE>

Restructuring of INTELSAT

     INTELSAT is continuing its efforts to transform itself from a treaty-based,
intergovernmental organization to a fully-private, commercial company.  In
October 1999, INTELSAT's Assembly of Parties (a meeting of the member
governments of INTELSAT) unanimously approved a plan targeting the privatization
of INTELSAT as early as April 1, 2001. Following privatization, INTELSAT would
operate as a private corporation without intergovernmental privileges and
immunities.  While the new privatized company initially would not be publicly
traded, it is contemplated that an initial public offering would take place in
2002, subject to market conditions and the actual date operations are
transferred to the restructured INTELSAT.  COMSAT is committed to privatizing
INTELSAT in a pro-competitive manner at the earliest possible time.  As a
minority shareholder and the U.S.  Signatory to INTELSAT, however, we lack the
ability to independently effect a restructuring of INTELSAT.  The success and
timing of our efforts will depend on our ability to achieve a consensus among
other Signatories and participating member governments.  Passage of the ORBIT
Act has decreased COMSAT's influence within INTELSAT.

Legislative and Regulatory Developments

     In March 2000, Congress passed and the President signed the ORBIT Act.  The
ORBIT Act amends the Communications Satellite Act of 1962 and repeals upon
enactment the special restrictions on the ownership of COMSAT stock.  The
legislation will permit the merger with Lockheed Martin to be completed
following receipt of the remaining required regulatory approvals.  FCC
regulation of COMSAT's capital structure will be eliminated upon enactment as
well.

     The ORBIT Act also establishes an April 1, 2001 deadline for the
privatization of INTELSAT, as well as criteria for determining whether the
privatizations of INTELSAT, Inmarsat and New Skies are "pro-competitive." These
criteria include the requirement that each entity conduct an initial public
offering by a date certain, that such public offerings substantially dilute
existing ownership of the satellite systems and that each entity's board have a
majority of independent directors.  The FCC may extend the deadlines for
completion of the public offering in consideration of market conditions and
relevant business factors related to the timing of the offering, but the
extensions may not permit the offering to occur after a specified date.  The
dates prescribed by the ORBIT Act for the initial public offerings to occur and
the last extension dates are:

        .    For INTELSAT - October 1, 2001 (unless extended by the FCC but not
             later than December 31, 2002);

        .    For Inmarsat - October 1, 2000 (unless extended by the FCC but not
             later than December 31, 2001); and

        .    For New Skies - July 1, 2000 (unless extended by the FCC but not
             later than July 31, 2001).

                                      40
<PAGE>

     The ORBIT Act provides that, if these and other criteria are not met, the
FCC may not license U.S. users (or may limit such licenses) to access the
satellite capacity of the privatized entities for so-called "non-core" services.
Non-core services include, for INTELSAT and New Skies, everything but capacity
for public-switched voice communications and occasional use television, and for
Inmarsat, all commercial services.  COMSAT believes that the privatization
criteria are achievable within the statutory deadlines and, therefore, does not
believe that sanctions (other than possible user license conditions) are likely
to be imposed.  The ORBIT Act also includes an exception for national security,
law enforcement and public safety applications, and various other
qualifications.

     During the transition to privatization, the ORBIT Act also restricts
INTELSAT, Inmarsat and New Skies from providing "additional services."  Unlike
the bill that previously passed the House, however, the ORBIT Act's definition
of additional services does not include any services that COMSAT is currently
providing.  Thus, the ORBIT Act is not expected to disrupt the provision of
existing services, such as Internet and high-speed data transmission, by COMSAT
to its customers.

     The ORBIT Act codifies an FCC action taken in 1999 that permits U.S. users
and telecommunication providers to acquire satellite capacity directly from
INTELSAT without going through COMSAT ("Level 3" direct access).  Unlike the
bill previously passed by the House, however, the ORBIT Act does not allow
"Level 4" direct access (direct investment in INTELSAT by other U.S. system
users and telecommunication providers).  As a result, COMSAT will remain the
sole U.S. investor in INTELSAT until privatization.  The ORBIT Act also includes
specific language protecting the integrity of COMSAT's contracts.

     The ORBIT Act repeals the provisions of the Satellite Act that require
COMSAT to have three Presidentially-appointed directors.  Two of those three
positions were vacant pending Presidential appointment.  The term of COMSAT's
remaining Presidentially-appointed director expired upon enactment of the ORBIT
Act.

     In addition, the ORBIT Act removes COMSAT's immunity from suit in its
capacity as an INTELSAT Signatory.  A limited exception is provided for actions
taken to carry out instructions of the U.S. Government.  The ORBIT Act includes
other safeguards to limit COMSAT's liability for actions taken by INTELSAT.

     Prior to enactment of the legislation, on September 15, 1999, the FCC
adopted a new policy of direct access to INTELSAT in the United States.
Specifically, the FCC authorized "Level 3" direct access.  The FCC rejected
requests to allow entities other than COMSAT to invest in INTELSAT proportionate
to their usage, finding that the FCC lacked the authority under the Satellite
Act to permit "Level 4" direct access.  In addition, the FCC authorized COMSAT
to file a tariff to charge all direct access users a surcharge to recover costs
incurred by COMSAT as Signatory to INTELSAT.  COMSAT's new direct access tariff
became effective on December 6, 1999.  Under the tariff, direct access users in
2000 must pay COMSAT 5.58% of the rate the direct access users pay to INTELSAT
for capacity ordered directly.  The level of this

                                      41
<PAGE>

surcharge will be reviewed in 2001, and the surcharge will be eliminated upon
privatization of INTELSAT.

     In the direct access proceeding, the FCC also rejected claims that COMSAT's
long-term carrier contracts should be subject to government abrogation under the
"fresh look" doctrine, thus preserving COMSAT's backlog of contracted capacity
commitments.  Moreover, the FCC declined to pursue claims for "portability" of
COMSAT's capacity to users.

     The ORBIT Act, however, requires the FCC to complete a proceeding within
six months of enactment to determine if users or providers of telecommunications
services have sufficient opportunity to access INTELSAT space segment capacity
directly from INTELSAT.  If the FCC determines that such opportunity does not
exist, the FCC must take appropriate action to facilitate direct access.
However, the FCC is prohibited by the ORBIT Act from modifying or abrogating any
COMSAT contract.

     On March 1, 2000, in anticipation of passage of the ORBIT Act, INTELSAT's
Board of Governors authorized the Director General of INTELSAT, if he concludes
that INTELSAT's interests so require, to commence an arbitration to determine
whether the ORBIT Act violates the obligations of the United States as a member
government and party to the INTELSAT Agreement.  On March 8, 2000, INTELSAT's
Director General sent a letter to the U.S. Secretary of State indicating that an
arbitration may be commenced if the ORBIT Act is enacted into law. The letter
was accompanied by an analysis, distributed to all parties and signatories, that
suggests that the ORBIT Act may violate the INTELSAT Agreement by, among other
matters, potentially attempting to control the timing of INTELSAT privatization,
limiting new INTELSAT services pending privatization, establishing privatization
criteria, and restricting INTELSAT to certain, so-called "core" services if the
privatization criteria are not satisfied.  If commenced, the arbitration would
be held before an international panel of legal experts on which COMSAT would not
have representation.  In addition, the INTELSAT Board of Governors expressed the
view that an Extraordinary Assembly of Parties may be required to discuss the
impact of the ORBIT Act on INTELSAT, the privatization process and compliance by
the United States with the INTELSAT Agreement.

     If the Assembly of Parties finds that a party has failed to comply with its
obligations under the INTELSAT Agreement, the party is deemed to have withdrawn
from INTELSAT as of the date of such finding.  In the Assembly of Parties, each
party has one vote.  INTELSAT currently has 143 member governments.  A vote of
two thirds of member governments present would be required to make the finding.
If the United States is deemed to have withdrawn from INTELSAT, COMSAT also
would have to simultaneously withdraw as the U.S. Signatory to INTELSAT, which
would result in the forced divestiture of its ownership interest in INTELSAT on
disadvantageous terms (e.g., at book value).  Because the withdrawal of the
United States from INTELSAT would be adverse to the best interests of that
organization, we do not expect that an Assembly of Parties would expel the
United States.

                                      42
<PAGE>

     COMSAT pays required fees to the FCC for applications and other filings and
for annual regulatory fees applicable to it as a U.S.  common carrier.  The FCC
has not, however, imposed "space station" regulatory fees on COMSAT with respect
to the satellites of INTELSAT and Inmarsat.  In December 1999, the U.S. Court of
Appeals for the D.C. Circuit reviewed the FCC order setting regulatory fees for
1998.  The Court remanded the case to the FCC to reconsider COMSAT's long-
standing exemption from space station regulatory fees.  The ORBIT Act clarifies
that the FCC has authority to impose regulatory fees on COMSAT similar to the
regulatory fees that it imposes on other entities providing similar services.
It is unclear whether space station regulatory fees can be imposed on COMSAT,
since COMSAT is a satellite services provider and not a satellite system
operator.  Moreover, if such fees were imposed, it is unclear how such fees
would be calculated and which satellites would be affected.  It is not expected
that space station regulatory fees would be imposed on COMSAT subsequent to the
privatization of INTELSAT and Inmarsat.  Pending completion of a proceeding by
the FCC, it is difficult to quantify the level of space station fees that might
be imposed.  We do not believe that such fees will have a material adverse
effect on COMSAT's long-term financial condition.  Nevertheless, the imposition
of such fees could materially affect consolidated results of operations in a
given year or quarter.

Potential Trends That May Affect Operating Performance

     Direct access could fundamentally change the way COMSAT does business.
Direct access may materially reduce World Systems' future revenues to the extent
that customers begin to contract directly with INTELSAT for new capacity and for
available non-COMSAT capacity as long-term contracts and capacity commitments
expire.  Other users may elect to remain with COMSAT to take advantage of the
added value (such as circuit management for U.S.-overseas connectivities) that
COMSAT offers U.S. users.  For example, on October 14, 1999, a month after the
FCC's direct access order, COMSAT executed an amended inter-carrier agreement
with AT&T Corporation which provides for price reductions in exchange for AT&T's
commitment to maintain specified levels of traffic on the INTELSAT system via
COMSAT through at least 2006.  We expect World Systems' revenues for 2000 to be
at approximately the same level or slightly higher than in 1999.

     In anticipation of privatization, World Systems plans to seek to maintain
its existing utilization of the INTELSAT satellite system to the extent possible
and, when available, to increase its ownership in connection with the annual
share re-determinations prior to privatization.  Any increase in COMSAT's
ownership share would be expected to have a favorable impact on operating
results.  In addition, during the third quarter of 1999, World Systems extended
the depreciable lives of the INTELSAT satellites based on the current estimated
useful lives of those satellites.  The effect of this change over a full
calendar year will have a favorable impact on World Systems' comparative segment
income year over year in 2000. We expect World Systems segment income to be
better in 2000, as compared to 1999.

     In the first quarter of 2000, COMSAT Mobile's two largest carrier customers
indicated that they no longer intend to continue routing U.S. originated fixed
to mobile traffic over the

                                      43
<PAGE>

Inmarsat satellite system through COMSAT. In March 2000, one such carrier began
routing its U.S. originated fixed to mobile traffic through another Inmarsat
service provider. As a result, Mobile's revenues and segment income are expected
to be adversely affected in the near term in the absence of other offsetting
factors.

     In International, we expect the growing demand for Internet services, the
introduction of Globalway service and the move to shared-use facilities to
generate improvements in revenues and segment operating results, excluding
unusual items (e.g., the gain on the sale of our Viatel shares in 1999).  COMSAT
Laboratories expects continued revenue growth and segment operating result
improvement in 2000 driven in part by the introduction of its LINKWAY products.

     On a consolidated basis, we expect COMSAT's net income in 2000 to be better
than in 1999, excluding unusual items (e.g., the ICO write-off and gain on the
sale of equity investments).  In addition, COMSAT is currently at an advanced
stage of negotiations to settle a tax refund claim and a commercial lawsuit.
COMSAT is the plaintiff in both cases.  Settlement of those matters on the terms
currently being discussed is expected to have a favorable material effect on
COMSAT's earnings.  The outcome of those negotiations, however, is not assured.
As discussed below, various factors could cause our expectations and earnings
outlook to change.

Year 2000 Issue (Year 2000 Readiness Disclosure)

     The year 2000 issue stems from existing computer programs that were written
using two digits rather than four digits to define the applicable year (e.g.,
"99" for 1999).  It was expected that some computer programs with date-sensitive
software might not operate properly when the last two digits become "00," as
occurred on January 1, 2000.  There was concern that year 2000 issues would
cause system failures and disrupt normal operations.

     In the second half of 1996, we initiated a program to identify and address
year 2000 issues in order to avoid interruption to our operations at the turn of
the century.  Each of our operating segments, as well as our administrative
functions, completed the inventory, assessment, remediation and testing phases
of the year 2000 implementation plan by the fourth quarter of 1999.

     Since January 1, 2000, we have not experienced any material year 2000
problems.  We are continuing to monitor all functions for year 2000 compliance.
The cost through December 31, 1999, to modify in-house management information
systems, customer products and other systems and equipment affected by the year
2000 issue was $7 million.

Forward-Looking Statements - Safe Harbor Provisions

     This report contains "forward-looking statements" within the meaning of the
federal securities laws.  Those statements are not based on historical fact and
may not prove to be

                                      44
<PAGE>

accurate. Words such as "believe," "estimate," "anticipate," "project,"
"intend," expect," "plan," "scheduled" and similar expressions are intended to
identify forward-looking statements.

     Statements that look forward in time are based on management's current
expectations and assumptions, which may be affected by subsequent developments
and business conditions.  All forward-looking statements involve risks and
uncertainties.  Forward-looking statements and COMSAT's future operating results
may be affected by various factors.  These factors include, among others:

 .    the timing and outcome of regulatory and other governmental proceedings

 .    implementation of the ORBIT Act, including INTELSAT's reaction to its
     enactment

 .    the proposed merger of COMSAT with Lockheed Martin

 .    developments concerning the privatization of INTELSAT

 .    market conditions and other factors affecting the ability of INTELSAT,
     Inmarsat and New Skies to complete their planned initial public offerings

 .    international business conditions (e.g., foreign currency devaluation and
     economic instability in foreign markets)

 .    increased competition for satellite and networking services

 .    the recent ability of users to access the INTELSAT satellite system
     directly without contracting through COMSAT

 .    the responsiveness of customers to COMSAT's existing and new service
     offerings

 .    the outcome of contingencies, including litigation and other matters

 .    economic, political and technological risks and uncertainties, and

 .    subsequent developments and changes in business conditions not currently
     known or anticipated.

     Accordingly, there can be no assurance that actual future results will not
differ materially from anticipated results.

     You should not place undue reliance on forward-looking statements which
speak only as of the date of this report.  We do not undertake any obligation to
update the forward-looking statements to reflect events or circumstances or
changes in expectations after the date of this report or to reflect the
occurrence of subsequent events.  The forward-looking statements in this

                                      45
<PAGE>

document are intended to be subject to the safe harbor protection provided by
the federal securities laws.

     For additional discussion identifying some important factors that could
cause actual results to vary materially from those anticipated in the forward-
looking statements, see our SEC filings, including but not limited to our Annual
Report on Form 10-K for 1999 and subsequent filings, as well as the matters
identified throughout this report.

ANALYSIS OF CONSOLIDATED BALANCE SHEETS

Assets

     The total assets at December 31, 1999 were $1,652 million, which was $139
million lower than December 31, 1998.  The decrease was the result of the change
in accounting method related to our investment in Inmarsat, the write-off of our
direct and indirect investments in ICO and the impact on fixed assets of the
devaluation of the Brazilian currency.  Partially offsetting these decreases was
an increase in current assets.  At December 31, 1999, current assets were $291
million or $92 million higher than the end of the previous year.  This increase
was in part due to an increase in cash and the reclassification of cash
surrender value of certain life insurance policies to current assets.

     Property and equipment, net of depreciation, decreased $297 million during
1999.  This decrease was primarily from the change in accounting related to our
investment in Inmarsat, which reduced property and equipment by $245 million.
In addition, the devaluation of the Brazilian currency resulted in a $51 million
reduction to property.  Property and equipment additions in 1999 were $128
million.  This increase was primarily related to World Systems' share of
INTELSAT's satellite construction program and investment in new communications
property and equipment in International.

     Investments increased $79 million during 1999.  The impact of the change in
accounting related to our investment in Inmarsat increased investments by $169
million.  Partially offsetting this increase was the $71 million write-off of
our investments in ICO.

Liabilities

     The total liabilities decreased during 1999 by $78 million.  This was
primarily due to the change in accounting related to our investment in Inmarsat
as $67 million of long-term debt and $15 million of current maturities of long-
term debt were reclassified to investments.

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<PAGE>

ANALYSIS OF CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

     Cash from operating activities for 1999 was $141 million, compared to $323
million in 1998.  Exclusive of cash provided from discontinued operations, cash
from operating activities was $149 million, $71 million below 1998.  This
decrease was due to the change in how we report our investment in Inmarsat.
Distributions from Inmarsat are now reported in investing activities, rather
than operating activities as was done prior to 1999.  During 1999, the
corporation made interest payments, net of amounts capitalized, of $30 million
and paid income taxes of $22 million.

     In 1999, the corporation used $78 million in investing activities, as
compared to $166 million in 1998.  Property and equipment purchases during 1999
were primarily in World Systems and International, as the corporation continued
to make capital investments equal to its share of INTELSAT's satellite programs
and purchased communications property and equipment predominantly in
International's Latin American companies.  It is expected that the corporation's
capital expenditure purchases will be higher in 2000, as compared to 1999.

     Net cash used in financing activities was $15 million in 1999, which was
$117 million less than the previous year.  The corporation paid dividends of
$0.05 per share for each quarter of 1999.

Liquidity and Capital Resources

     COMSAT's working capital at December 31, 1999 was $141 million, which was
$83 million higher than at the end of 1998.  The improvement in working capital
during 1999 was primarily due to a decrease in capital expenditures, proceeds
from the sale of our investment in Viatel, Inc. and a distribution from Inmarsat
prior to its privatization.  Partially offsetting these items was cash used to
increase our level of ownership in INTELSAT.  Cash from operating activities in
2000 is expected to be used to fund growth and to finance working capital needs.

     We have access to short-term and long-term financing at favorable rates.
Our current long-term debt ratings are A- from Standard and Poor's and Baa1 from
Moody's.  Our current commercial paper ratings are A2 from Standard and Poor's
and P2 from Moody's.  Following the announcement of the proposed merger with
Lockheed Martin, both Standard and Poor's and Moody's placed their ratings on
our long-term debt under review for possible downgrades. Shortly after
completion of the tender offer, Moody's downgraded COMSAT's long-term debt and
the Monthly Income Preferred Securities issued by COMSAT Capital I, L.P. from A3
to Baa1.  Ratings from both Moody's and Standard and Poor's remain under review
for possible further downgrades as a result of the merger.  The ratings for
commercial paper are not under review at this time.

                                      47
<PAGE>

     Our commercial paper program had no borrowings outstanding at December 31,
1999.  A $140 million credit agreement, expiring at December 15, 2000, backs up
our commercial paper program.  We had $36 million remaining under a $100 million
medium-term note program at December 31, 1999.  The medium-term note program is
part of a $200 million debt securities shelf registration program initiated in
1994.

     Our capital structure and debt-financing activities are currently regulated
by the FCC. Under the existing guidelines approved by FCC, we are subject to a
limit of $200 million in short-term debt, a maximum long-term debt to total
capital ratio of 45% and an interest coverage ratio of 2.3 to 1.  We were in
compliance with these guidelines at December 31, 1999, with a long-term debt to
total capital ratio of 40.6%, no short-term debt outstanding other than $1
million of current maturities of long-term debt, and an interest coverage ratio
of 4.0 to 1.  We anticipate that, under the ORBIT Act, FCC regulation of our
capital structure and the resulting capitalization requirements will be
eliminated.





                                      48
<PAGE>

Item 7a:  Quantitative and Qualitative Disclosures About Market Risk

     The corporation does not hold or issue derivative financial instruments.
The corporation finances its operations and manages its interest rates through a
combination of short-term commercial paper, fixed-rate long-term
debt and Monthly Income Preferred Securities (MIPS) issued by a subsidiary.  The
MIPS pay a fixed dividend.  Borrowings under the corporation's short-term
commercial paper program will expose the corporation's operating results to
changes in short-term rates.  At December 31, 1999, no commercial paper was
outstanding.

     The corporation invests its excess cash in highly liquid investments with a
maturity of three months or less. Such investments can expose the corporation's
operating results to changes in short-term rates.

     As of December 31, 1999, the fair value of the corporation's fixed-rate,
long-term debt was $401,704,000.  Assuming a 10% increase in interest rates, the
fair value of the corporation's fixed-rate, long-term debt would be
$393,795,000.  Likewise, assuming a 10% decrease in interest rates, the fair
value of the corporation's fixed-rate, long-term debt would be $409,868,000.

     CI conducts its operations primarily through majority-owned and wholly-
owned subsidiaries.  The corporation has financed CI's subsidiaries through
capital contributions.  CI's largest subsidiaries utilize the local currency as
their functional currency.  Therefore, fluctuations in exchange rates relative
to the U.S. Dollar, primarily those related to the Brazilian Real, are recorded
as cumulative translation adjustments as a component of stockholders' equity.
Fluctuations in exchange rates relative to the U.S. Dollar have not had a
material impact on the corporation's cash flows or results of operations.

                                      49
<PAGE>

Item 8:   Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
COMSAT Corporation:

We have audited the accompanying consolidated balance sheets of COMSAT
Corporation and its subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
cash flow for each of the three years in the period ended December 31, 1999.
Our audit also included the financial statement schedule listed in the index at
Item 14(a)2.  These financial statements and the financial statement schedule
are the responsibility of the corporation's management.  Our responsibility is
to express an opinion on these financial statements and the financial statement
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion such consolidated financial statements present fairly, in all
material respects, the financial position of the corporation and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with generally accepted accounting principles.  Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.


Deloitte & Touche LLP
McLean, Virginia
February 17, 2000
(March 17,2000 as to the fourth paragraph of Note 2 and
the second paragraph of Note 11)

                                      50
<PAGE>

                      COMSAT CORPORATION AND SUBSIDIARIES
                         CONSOLIDATED INCOME STATEMENTS
              For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
In thousands, except per share amounts                                 1999       1998       1997
---------------------------------------------------------------------------------------------------
<S>                                                                 <C>         <C>        <C>
Revenues                                                             $618,266   $616,469   $562,651
                                                                     ---------  ---------  --------
Operating expenses:
  Cost of services                                                    347,202    284,053    263,934
  Depreciation and amortization                                       164,787    219,883    184,206
  Research and development                                              9,202      7,914      9,296
  General and administrative                                           24,707     25,592     23,247
  Impairment of long-lived assets                                           -     14,000          -
  Merger costs                                                         10,273      5,525          -
                                                                     ---------  ---------  --------
  Total operating expenses                                            556,171    556,967    480,683
                                                                     ---------  ---------  --------

Operating income                                                       62,095     59,502     81,968

Other income (expense), net                                           (26,823)    12,518      4,245
Interest costs                                                        (42,195)   (44,502)   (51,426)
Interest capitalized                                                    4,973      4,690      9,394
                                                                     ---------  ---------  --------
Income (loss) from continuing operations before taxes and
  extraordinary item                                                   (1,950)    32,208     44,181

Income tax expense                                                        616      5,791     15,613
                                                                     ---------  ---------  --------
Income (loss) from continuing operations before
extraordinary item                                                     (2,566)    26,417     28,568

Discontinued operations, net of tax                                         -          -    (89,068)
                                                                     ---------  ---------  --------

Income (loss) before extraordinary item                                (2,566)    26,417    (60,500)

Extraordinary loss from early extinguishment of debt, net of tax            -          -     (3,946)
                                                                     ---------  ---------  --------
Net income (loss)                                                    $ (2,566)  $ 26,417   $(64,446)
                                                                     =========  =========  ========
Earnings (loss) per common share - basic:
  Income (loss) from continuing operations before
    extraordinary item                                               $  (0.05)  $   0.51   $   0.58
  Discontinued operations                                                   -          -      (1.82)
  Extraordinary loss                                                        -          -      (0.08)
                                                                     ---------  ---------  --------
  Net income (loss)                                                  $  (0.05)  $   0.51   $  (1.32)
                                                                     =========  =========  ========
Earnings (loss) per common share - assuming dilution:
  Income (loss) from continuing operations before
    extraordinary item                                               $  (0.05)  $   0.50   $   0.57
  Discontinued operations                                                   -          -      (1.78)
  Extraordinary loss                                                        -          -      (0.08)
                                                                     ---------  ---------  --------
  Net income (loss)                                                  $  (0.05)  $   0.50   $  (1.29)
                                                                     =========  =========  ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      51
<PAGE>

                      COMSAT CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
In thousands                                                                    1999            1998
-------------------------------------------------------------------------------------------------------
<S>                                                                          <C>             <C>
ASSETS
------
Current assets:
  Cash and cash equivalents                                                  $   78,632      $   30,795
  Receivables                                                                   149,973         131,052
  Deferred income taxes                                                          15,140           7,911
  Other                                                                          45,546          16,243
  Net assets of discontinued operations                                           1,331          12,964
                                                                             ----------      ----------
  Total current assets                                                          290,622         198,965
                                                                             ----------      ----------

Property and equipment                                                          912,475       1,209,462
Investments                                                                     327,684         249,064
Other assets                                                                    120,943         133,307
                                                                             ----------      ----------
  Total assets                                                               $1,651,724      $1,790,798
                                                                             ==========      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
  Current maturities of long-term debt                                       $      786      $   14,962
  Accounts payable and accrued liabilities                                      114,081          88,297
  Due to related parties                                                         27,893          30,424
  Other                                                                           6,928           7,119
                                                                             ----------      ----------
  Total current liabilities                                                     149,688         140,802
                                                                             ----------      ----------

Long-term debt                                                                  408,979         446,832
Deferred income taxes                                                           106,563         127,351
Deferred investment tax credits                                                   3,651           6,158
Accrued post-retirement benefit costs                                            49,075          48,923
Other long-term liabilities                                                     136,063         161,692
Commitments and contingencies (notes 10 & 11)                                         -               -
Preferred securities issued by subsidiary                                       200,000         200,000

Stockholders' equity:
  Common stock, without par value, 100,000 shares authorized,
    53,387 shares issued in 1999 and 52,713 shares issued in 1998               448,072         430,537
  Preferred stock, 5,000 shares authorized, no shares issued
    or outstanding
  Retained earnings                                                             229,681         242,809
  Treasury stock, at cost, 264 shares in 1999 and 80 in 1998                     (8,991)         (3,109)
  Unearned compensation                                                          (2,804)         (4,652)
  Accumulated other comprehensive loss                                          (68,253)         (6,545)
                                                                             ----------      ----------
  Total stockholders' equity                                                    597,705         659,040
                                                                             ----------      ----------
  Total liabilities and stockholders' equity                                 $1,651,724      $1,790,798
                                                                             ==========      ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      52
<PAGE>

                      COMSAT CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED CASH FLOW STATEMENTS
              For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
In thousands                                                             1999        1998        1997
-------------------------------------------------------------------------------------------------------
<S>                                                                   <C>         <C>         <C>
Operating activities:
Net income (loss)                                                     $  (2,566)  $  26,417   $ (64,446)
Adjustments to reconcile net income (loss) to net cash provided by
  continuing operations:
  Depreciation and amortization                                         164,787     219,883     184,206
  Equity in net loss of affiliates                                       16,202           -           -
  Write-off of investment                                                35,985           -           -
  Impairment of long-lived assets                                             -      14,000           -
  Loss from discontinued operations                                           -           -      89,068
  Gain on sale of investments                                           (29,701)    (14,635)     (1,987)
  Gain on sale of land                                                        -           -      (7,261)
  Extraordinary loss from early extinguishment of debt                        -           -       3,946
Changes in assets and liabilities:
  Receivables and other current assets                                  (23,397)     (6,890)      3,953
  Current liabilities                                                      (689)     21,441      (4,709)
  Non-current liabilities                                               (17,930)    (38,516)      1,665
Other                                                                     5,915      (1,749)      1,165
                                                                    -----------   ---------   ---------
Net cash provided by continuing operations                              148,606     219,951     205,600
Net cash provided (used) by discontinued operations                      (7,186)    102,769     (36,865)
                                                                    -----------   ---------   ---------
Net cash provided by operating activities                               141,420     322,720     168,735
                                                                    -----------   ---------   ---------
Investing activities:
Purchase of property and equipment                                     (115,171)   (187,838)   (254,291)
Investments in unconsolidated businesses                                      -      (6,202)    (19,950)
Proceeds from sale of land                                                    -           -       9,293
Proceeds from note on sale of investments                                     -           -      19,097
Proceeds from sale of investments                                        33,591      19,871       9,060
Proceeds from sale of subsidiary                                         10,100           -           -
Satellite insurance proceeds                                                  -       8,024           -
Decrease (increase) in INTELSAT ownership                               (38,064)       (689)     23,232
Distribution from Inmarsat                                               31,248           -           -
Decrease in Inmarsat ownership                                                -       5,999         213
Other                                                                       189      (5,113)     (7,704)
                                                                    -----------   ---------   ---------
Net cash used in investing activities                                   (78,107)   (165,948)   (221,050)
                                                                    -----------   ---------   ---------
Financing activities:
Net short-term borrowings (repayments)                                        -    (149,506)    131,513
Repayments against company-owned life insurance policies                      -         (64)     (3,962)
Common stock issued                                                       7,355      46,453      20,398
Repayment of long-term debt                                              (7,887)    (13,760)   (114,903)
Payment of satellite performance incentives                              (4,382)     (4,464)          -
Cash dividends paid                                                     (10,562)    (10,393)    (16,975)
Proceeds from Clarksburg financing                                            -           -      34,342
                                                                    -----------   ---------   ---------
Net cash provided (used) by financing activities                        (15,476)   (131,734)     50,413
                                                                    -----------   ---------   ---------
Net increase (decrease) in cash and cash equivalents                     47,837      25,038      (1,902)
Cash and cash equivalents, January 1                                     30,795       5,757       7,659
                                                                    -----------   ---------   ---------
Cash and cash equivalents, December 31                                $  78,632   $  30,795   $   5,757
                                                                    ===========   =========   =========
Supplemental cash flow information:
  Interest paid, net of amount capitalized                            $  29,873   $  36,807   $  39,732
  Income taxes paid (refunded)                                           22,317      (1,676)     11,404
  Non-cash property additions:
    Satellites                                                           13,129       2,493       5,403
    Satellite performance incentives                                          -      34,397           -
  Distribution of Ascent Entertainment Group, Inc. shares                     -           -     194,633
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      53
<PAGE>

                      COMSAT CORPORATION AND SUBSIDIARIES
           STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
              For the Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                                            Accumulated
                                                                                                               Other
                                      Shares    Shares      Common   Treasury    Retained     Unearned     Comprehensive
            In thousands              Issued  Outstanding   Stock      Stock     Earnings   Compensation   Income (loss)     Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>     <C>          <C>       <C>        <C>         <C>            <C>             <C>
Balance at December 31, 1996          49,090     48,821    $340,691   $(3,006)  $ 502,839      $(3,757)       $  5,050     $841,817
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
    Net loss                                                                      (64,446)                                  (64,446)
    Unrealized loss on securities
     (net of tax benefit of $2,997)                                                                             (5,411)      (5,411)
    Foreign currency translation
     (net of tax of $0)                                                                                         (1,515)      (1,515)
    Minimum pension liability (net
     of tax of $553)                                                                                               958          958
                                                                                                                         ----------
    Total comprehensive loss                                                                                                (70,414)
Cash dividends                                                                    (16,975)                                  (16,975)
Distribution of Ascent Entertainment
  Group Inc., shares                                                             (194,633)                                 (194,633)
Stock awards and options, 401(k)
 and employee stock purchase plan      1,027      1,155      24,296     1,248                     (982)                      24,562
Other                                     80         80       1,914                                                           1,914
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997          50,197     50,056     366,901    (1,758)    226,785       (4,739)           (918)     586,271
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
    Net income                                                                     26,417                                    26,417
    Unrealized gain on securities
     (net of tax of $5,985)                                                                                     11,072       11,072
    Foreign currency translation
     (net of tax of $3,158)                                                                                    (14,380)     (14,380)
    Minimum pension liability (net
     of tax benefit of $1,414)                                                                                  (2,319)      (2,319)
                                                                                                                         ----------
    Total comprehensive income                                                                                               20,790
Cash dividends                                                                    (10,393)                                  (10,393)
Stock awards and options, 401(k)
 and employee stock purchase plan      2,474      2,535      62,232    (1,351)                      87                       60,968
Other                                     42         42       1,404                                                           1,404
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998          52,713     52,633     430,537    (3,109)    242,809       (4,652)         (6,545)     659,040
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
    Net loss                                                                       (2,566)                                   (2,566)
    Unrealized loss on securities
     (net of tax benefit of $5,626)                                                                            (10,626)     (10,626)
    Foreign currency translation
     (net of tax benefit of $894)                                                                              (51,636)     (51,636)
    Minimum pension liability (net
     of tax of $337)                                                                                               554          554
                                                                                                                         ----------
    Total comprehensive loss                                                                                                (64,274)
Cash dividends                                                                    (10,562)                                  (10,562)
Stock awards and options, 401(k)
 and employee stock purchase plan        637        453      16,538    (5,882)                   1,848                       12,504
Other                                     37         37         997                                                             997
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999          53,387     53,123    $448,072   $(8,991)  $ 229,681      $(2,804)       $(68,253)    $597,705
===================================================================================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                      54
<PAGE>

                      COMSAT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              For the Years Ended December 31, 1999, 1998 and 1997


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation and Basis of Presentation.  Accounts of COMSAT
     Corporation and its majority-owned subsidiaries (COMSAT or the corporation)
     have been consolidated. Significant intercompany transactions have been
     eliminated. Investments in nonconsolidated affiliates (20% - 50% owned
     companies) are accounted for using the equity method of accounting.  Equity
     in the net income (loss) of the nonconsolidated affiliates is reported in
     "Other income (expense), net" on the income statement.

     The corporation has consolidated its shares of the accounts of the
     International Telecommunications Satellite Organization (INTELSAT) and,
     prior to 1999, its shares of the accounts of the International Mobile
     Satellite Organization (Inmarsat).  Inmarsat completed its privatization on
     April 15, 1999.  As a result, the corporation now uses the equity method of
     accounting to report its 22.2% ownership in the privatized Inmarsat.  As of
     December 31, 1999, the corporation owned 20.4% of INTELSAT.  The
     corporation's ownership interests in INTELSAT and Inmarsat prior to 1999
     are based primarily on the corporation's usage of these systems.

     Prior to 1999, the corporation consolidated its share of the accounts of
     Inmarsat and reported its share of Inmarsat's revenues (net of space
     segment costs paid to Inmarsat), cost of services, depreciation and
     amortization and interest costs in the respective categories of the income
     statement.  The corporation now reports its proportionate share of
     Inmarsat's net operating results using the equity method of accounting.
     Space segment charges paid to Inmarsat are now reported in cost of
     services.  The corporation also reclassified Inmarsat related amounts from
     property and equipment, current maturities of long-term debt, due to
     related parties and long-term debt to form its investment in Inmarsat.

     Use of Estimates.  The preparation of financial statements in conformity
     with generally accepted accounting principles requires estimates and
     assumptions that directly affect the amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period.  Actual results may differ from those
     estimates.  Estimates are used in determining the loss on disposal of
     discontinued operations and in accounting for long-term contracts,
     allowance for doubtful accounts, depreciation and amortization, employee
     benefit plans, taxes, litigation, and contingencies.

     Revenue Recognition.  Revenue from satellite services is recognized over
     the period during which the satellite services are provided.  Revenue from
     long-term product, system integration and related services contracts is
     accounted for using the percentage-of-completion (cost-to-cost) method.
     Revenue from other services is recorded as services are provided.

                                      55
<PAGE>

     Income Taxes and Investment Tax Credits.  The provision for income taxes
     includes taxes currently payable and those deferred because of differences
     between the financial statement and tax bases of assets and liabilities.
     The corporation has earned investment tax credits on certain INTELSAT and
     Inmarsat satellite costs.  These tax credits have been deferred and are
     being recognized as reductions to the tax provision over the estimated
     service lives of the related assets.

     Evaluation of Long-Lived Assets.  In accordance with Statement of Financial
     Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
     Long-Lived Assets and for Long-Lived Assets to be Disposed of," the
     corporation evaluates the potential impairment of long-lived assets,
     including goodwill, based upon projections of undiscounted cash flows
     whenever events or changes in circumstances indicate that the carrying
     amount of an asset may not be fully recoverable.

     Marketable Securities.  The corporation's marketable securities are
     categorized as available-for-sale securities, as defined in SFAS No. 115,
     "Accounting for Certain Investments in Debt and Equity Securities."
     Unrealized holding gains and losses are reflected, net of tax, as a
     separate component of accumulated other comprehensive income (loss) until
     realized.  For the purpose of computing realized gains and losses, cost is
     identified on a specific identification basis.

     Other Assets.  The cash surrender values of life insurance policies
     totaling $19,898,000 and $87,589,000 at December 31, 1999 are included in
     "Other current assets" and "Other assets," respectively.  At December 31,
     1998, cash surrender values of life insurance policies of $97,529,000 were
     reported in "Other assets."  "Other income (expense), net" on the income
     statement includes $3,983,000, $3,185,000 and $3,379,000 from the increases
     in the cash surrender values of these policies in 1999, 1998 and 1997,
     respectively.

     Foreign Currency Translation.  Financial statements of international
     subsidiaries are translated into U.S. dollars using the exchange rate at
     each balance sheet date for assets and liabilities and a weighted average
     exchange rate for each period for revenues, expenses, gains and losses.
     Where the local currency is the functional currency, translation
     adjustments are recorded as a separate component of stockholders' equity.
     Where the U.S. dollar is the functional currency, translation adjustments
     are recorded in the income statement.

     Stock-Based Compensation.  The corporation accounts for employee stock-
     based compensation using the intrinsic value method prescribed in
     Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
     Employees," and related interpretations. Accordingly, compensation costs
     for stock options are measured as the excess, if any, of the quoted market
     price of the corporation's stock at the date of the grant over the amount
     an employee must pay to acquire the stock.

                                      56
<PAGE>

     Cash Flow Information.  The corporation considers highly liquid investments
     with a maturity of three months or less at the time of purchase to be cash
     equivalents.

     New Accounting Pronouncements.  In June 1998, the Financial Accounting
     Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments
     and Hedging Activities." The statement requires companies to recognize all
     derivatives as either assets or liabilities, with the instruments measured
     at fair value.  The accounting for changes in fair value and gains or
     losses depends on the intended use of the derivative and its resulting
     designation.  The statement was originally effective for fiscal years
     beginning after June 15, 1999.  In June 1999, FASB delayed implementation
     of this statement by one year, to June 15, 2000.  The corporation will
     adopt SFAS No. 133 in the first quarter of 2001 and is evaluating the
     impact that implementation of this statement will have on its consolidated
     financial statements.

2.   AGREEMENT AND PLAN OF MERGER WITH LOCKHEED MARTIN CORPORATION

     On September 18, 1998, COMSAT entered into an Agreement and Plan of Merger
     with Lockheed Martin Corporation.  Under the terms of the merger agreement,
     Lockheed Martin has agreed to acquire all of COMSAT's outstanding common
     stock in a two-step transaction.

     The first step of the transaction, a tender offer to purchase up to 49% of
     the COMSAT common stock at $45.50 per share in cash, was completed on
     September 18, 1999.  As a result, Lockheed Martin now owns approximately
     49% of COMSAT's common stock.

     The merger agreement also provides that, as soon as practical after
     satisfaction of required closing conditions, COMSAT will be merged with a
     subsidiary of Lockheed Martin.  In the merger, each remaining outstanding
     share of COMSAT common stock will be converted into the right to receive
     one share of common stock of Lockheed Martin.  The exchange ratio in the
     merger is subject to adjustment in the event of changes in the
     capitalization of Lockheed Martin.

     Significant conditions to the consummation of the merger include: the
     amendment of the Communications Satellite Act of 1962 and the receipt of
     the approvals of the FCC and other governmental authorities required for
     the consummation of the merger.  In March 2000, Congress passed and the
     President signed the Open Market Reorganization for the Betterment of
     International Telecommunications Act (commonly referred to as the "ORBIT
     Act").  The ORBIT Act amends the Satellite Act and repeals upon enactment
     the special restrictions on the ownership of COMSAT common stock.  The
     legislation will permit the merger with Lockheed Martin to be completed
     following receipt of the remaining required regulatory approvals.  In
     addition, the obligations of Lockheed Martin to consummate the Merger are
     subject to there not being any fact or circumstance that would reasonably
     be expected to have a significant adverse effect on COMSAT.

     In connection with the merger agreement, the parties also entered into
     several related agreements.  COMSAT entered into a shareholders agreement
     with Lockheed Martin, pursuant to which, following consummation of the
     tender offer, three individuals selected

                                      57
<PAGE>

     by Lockheed Martin, two of whom previously served on the Board of Directors
     of COMSAT, were designated Lockheed Martin directors and appointed to
     certain committees of the Board. Under the shareholders agreement, COMSAT
     also agreed not to amend or repeal the provisions of its bylaws that permit
     any three directors to call a special meeting of the Board of Directors or
     otherwise amend its articles of incorporation or bylaws in a manner that
     would adversely affect the rights of Lockheed Martin under the transaction
     documents. The shareholders agreement also provides that, in the event that
     the merger is not consummated, COMSAT will cause its Board of Directors to
     amend COMSAT's articles of incorporation to eliminate certain transfer
     restrictions that would otherwise apply to Lockheed Martin and to recommend
     the amendment to shareholders for their approval. The shareholders
     agreement also places restrictions on Lockheed Martin with respect to the
     divesture of its COMSAT common stock.

     In addition, COMSAT and Lockheed Martin entered into a registration rights
     agreement, pursuant to which, if the merger is not consummated, Lockheed
     Martin will have demand and piggy-back registration rights to cause COMSAT
     to register the shares of COMSAT common stock that it holds.

     COMSAT also entered into a carrier acquisition agreement with Lockheed
     Martin, pursuant to which a subsidiary of COMSAT was merged with a
     subsidiary of Lockheed Martin to facilitate consummation of the tender
     offer.  COMSAT received cash of $10,100,000, which equaled the book value
     of the subsidiary, COMSAT Government Systems, Inc.

     In connection with the merger agreement, COMSAT adopted a retention bonus
     plan.  The retention bonus plan generally provides retention bonuses to key
     employees who remain employed by COMSAT or who incur a defined termination
     of employment through specified dates subsequent to September 18, 1998.
     Merger costs include compensation expense associated with the retention
     bonus plan, investment banking fees and fees for other professional
     services related to the merger.

3.   RECEIVABLES

     Receivables consisted of:

<TABLE>
<CAPTION>
     In thousands                                 1999       1998
     --------------------------------------------------------------
     <S>                                        <C>        <C>
     Commercial receivables                     $100,202   $108,738
     Receivables under long-term contracts:
       U.S. Government:
          Amounts billed                           8,573      7,375
          Unbilled costs and accrued profits      10,868      9,505
       Commercial customers:
          Amounts billed                           9,731      5,177
          Unbilled costs and accrued profits       6,602      2,675
     Related party receivables                    16,337      4,836
     Other                                        13,046      9,869
                                                -------------------
     Total                                       165,359    148,175
     Less allowance for doubtful accounts        (15,386)   (17,123)
                                                -------------------
     Net                                        $149,973   $131,052
                                                ===================
</TABLE>

                                      58
<PAGE>

     Unbilled amounts represent accumulated costs and accrued profits that will
     be billed at future dates in accordance with contract terms and delivery
     schedules. The 1999 unbilled receivables are expected to be billed within
     one year.

     In January 1997, the corporation sold its 19.66% interest in Philippine
     Global Communications, Inc. (PhilCom) for cash and a collaterized note
     receivable totaling $34,292,000. In February 2000, the note was amended so
     that the balance would be paid in installments with interest through
     December 15, 2000. At December 31, 1999, the note balance of $6,854,000 is
     included in "Other" in the table above.

4.   PROPERTY AND EQUIPMENT

     Property and equipment includes the corporation's shares of INTELSAT (for
     both 1999 and 1998) and Inmarsat (for 1998) property and equipment.

<TABLE>
<CAPTION>
     In thousands                                      1999          1998
     -----------------------------------------------------------------------
     <S>                                           <C>           <C>
     Property and equipment at cost:
       Satellites                                  $ 1,547,248   $ 1,643,145
       Furniture, fixtures and equipment               355,283       696,602
       Buildings and improvements                      105,743       107,772
       Land                                              4,468         3,246
                                                   -------------------------
       Total                                         2,012,742     2,450,765
       Less accumulated depreciation                (1,209,924)   (1,298,336)
                                                   -------------------------
       Net, in service                                 802,818     1,152,429
     Property and equipment under construction:
       INTELSAT satellites                              94,312        37,393
       Other                                            15,345        19,640
                                                   -------------------------
       Total                                       $   912,475   $ 1,209,462
                                                   =========================
</TABLE>

     Satellites include construction costs, launch costs, direct development
     costs, insurance costs, satellite performance incentive payments and
     capitalized interest.  Depreciation is calculated using the straight-line
     method over the estimated service life of each asset. The service lives for
     property and equipment generally are: satellites, 10 to 16 years;
     furniture, fixtures and equipment, 3 to 15 years; buildings and
     improvements, 3 to 40 years.

     Change in Depreciable Lives of Satellites.  Effective July 1, 1999, the
     corporation extended the depreciable lives of certain INTELSAT satellites
     by two to three years to reflect the current estimated useful lives of
     those satellites.  This change in estimate had the effect of decreasing
     depreciation expense in 1999 by $10,467,000 and the net loss by $6,568,000
     ($0.12 per share).

     Change in Satellite Accounting Policies.  Effective January 1, 1998, the
     corporation changed its accounting policy with respect to the cost of
     satellites lost at launch or in orbit.  Such costs will be expensed in the
     period in which the satellite is lost at launch or experiences a total
     failure in orbit.  Previously, the cost of failed satellites was amortized
     over their original useful lives.  Partial in-orbit failures will be
     evaluated for impairment according to the provisions of SFAS No. 121.  Also
     effective January 1, 1998, the corporation changed its accounting policy
     with respect to satellite performance incentive payments paid to
     manufacturers to capitalize the net present value of such costs as a

                                      59
<PAGE>

     component of the cost of the satellite.  Previously, certain of these
     payments were expensed as paid.  These changes did not have a material
     effect on the corporation's financial statements.

     Satellite Insurance Proceeds.  The INTELSAT 801 satellite suffered damage
     during in-orbit testing following its launch in the first quarter of 1997.
     Although the satellite's operational capability has not been diminished,
     its depreciable life has been shortened from 10 years to 8 years.  Under
     the terms of its satellite insurance policy, the corporation received
     insurance proceeds of $8,024,000 in the third quarter of 1998 and,
     correspondingly, reduced the book value of the satellite.

     Sale of Land.  In September 1997, COMSAT sold its Clarksburg, Maryland
     office building and the surrounding land for $45,750,000 in an all-cash
     transaction.  A gain of $7,261,000 was recognized on the sale of land and
     is reported in "Other income (expense), net" on the income statement.  The
     corporation also entered into a 10-year lease agreement with the new owner
     to continue occupying the office building, which principally houses COMSAT
     Laboratories.  In addition to lease payments, the corporation is
     responsible for taxes, insurance and maintenance of the building.  The
     sale-leaseback of the office building has been accounted for as a financing
     due to COMSAT's continuing involvement as the lessor of floor space in the
     building to non-COMSAT tenants.  As a result, the historical cost of the
     building remains in property and is being depreciated over the 10-year
     lease term.

     A financing obligation of $36,219,000, representing the proceeds received
     for the building, was recorded at the time of sale.  This obligation is
     being amortized as the lease payments are made.  The net present value of
     this obligation at December 31, 1999 totals $31,534,000, of which
     $2,592,0000 is reflected in "Accounts payable and accrued liabilities" and
     the remainder in "Other long-term liabilities."

     At December 31, 1999, the future lease payments pursuant to the sale-
     leaseback are $5,273,000 in 2000, $5,418,000 in 2001, $5,567,000 in 2002,
     $5,720,000 in 2003, $5,877,000 in 2004 and $16,992,000 thereafter.










                                      60
<PAGE>

5.   INVESTMENTS

     Investments as of December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                        Unrealized
                                                         Holding
     In thousands                               Cost       Gain      Total
     -----------------------------------------------------------------------
     <S>                                      <C>       <C>         <C>
     1999
     ----
     Available-for-sale equity securities     $  2,507     $ 3,431  $  5,938
                                            --------------------------------
     Equity investees:
          Inmarsat                             169,474           -   169,474
          Other                                  1,142           -     1,142
                                            --------------------------------
          Total                                170,616           -   170,616
                                            --------------------------------
     Cost investments:
          New Skies                            147,507           -   147,507
          Other                                  9,561           -     9,561
                                            --------------------------------
          Total                                157,068           -   157,068
                                            --------------------------------
     Total                                     330,191       3,431   333,622
     Less current portion                        2,507       3,431     5,938
                                            --------------------------------
     Total                                    $327,684           -  $327,684
                                            ================================

     <CAPTION>
                                                        Unrealized
                                                         Holding
     In thousands                               Cost       Gain      Total
     -----------------------------------------------------------------------
     <S>                                      <C>       <C>         <C>
     1998
     ----
     Available-for-sale equity securities:
          ICO                                 $ 41,189     $ 1,239  $ 42,428
          Other                                  6,376      18,444    24,820
                                            --------------------------------
          Total                                 47,565      19,683    67,248
                                            --------------------------------
     Cost investments:
          New Skies                            145,298           -   145,298
          ICO                                   29,484           -    29,484
          Other                                  6,587           -     6,587
                                            --------------------------------
          Total                                181,369           -   181,369
     Equity investees                              447           -       447
                                            --------------------------------
     Total                                    $229,381     $19,683  $249,064
                                            ================================
</TABLE>

     Summarized Financial Information.  Summarized financial information for the
     corporation's nonconsolidated affiliates (Inmarsat Holdings - 22.2%, COMSAT
     Max Limited - 49% and Rock Spring II Limited Partnership - 50%), primarily
     Inmarsat, accounted for by the equity method, is set forth below.  The
     corporation's equity in the net loss of these nonconsolidated affiliates
     was $16,202,000 in 1999.


     Summarized balance sheet information at December 31, 1999:

<TABLE>
<CAPTION>
     In thousands                  1999
     -------------------------------------
     <S>                        <C>
     Current assets             $  263,242
     Non current assets            911,346
                              ------------
     Total assets               $1,174,588
                              ============

     Current liabilities        $  177,228
     Non current liabilities       361,333
                              ------------
     Total liabilities          $  538,561
                              ============
</TABLE>

                                      61
<PAGE>

     Summarized income statement information for year ended December 31, 1999:

<TABLE>
<CAPTION>
     In thousands          1999
     ----------------------------
     <S>                 <C>
     Revenues            $432,173
     Operating income     138,606
     Net loss             (45,312)
</TABLE>

     New Skies.  Effective November 30, 1998, INTELSAT transferred five
     operational satellites to New Skies Satellites N.V.  New Skies is a
     commercial company which was created by INTELSAT.

     As a result of INTELSAT's transfer of the satellites, plus working capital,
     the corporation reclassified $146,826,000 from property and equipment,
     $2,711,000 from other cost investments and $4,239,000 from liabilities to
     establish its $145,298,000 investment in New Skies in 1998.  As of December
     31, 1999, the corporation owned directly 16.6% of New Skies and accounts
     for this investment using the cost method.

     If New Skies had been formed as of January 1, 1998, and if the satellites
     had been transferred to New Skies at that time, the corporation's unaudited
     proforma consolidated revenues, operating income and net income for 1998
     would have been $597,330,000, $56,713,000 and $24,868,000, respectively.

     ICO.  ICO Global Communications (Holdings) Limited filed for Chapter 11
     bankruptcy on August 27, 1999.  During the third quarter of 1999, the
     corporation wrote-off its 1.6% direct ownership interest in ICO of
     $35,985,000.  In addition, the corporation had an indirect investment of
     $34,650,000 in ICO through its investment in Inmarsat, which is also an ICO
     shareholder.  Inmarsat also subsequently wrote-off its investment in ICO,
     and in the fourth quarter of 1999 the corporation recognized the loss as
     part of its share of Inmarsat's net results.

     In December 1998, ICO paid the corporation $4,500,000 to settle a dispute
     between the two companies.  In exchange for this payment, the corporation
     transferred operation of ICO's Satellite Access Node facility in the United
     States back to ICO and waived the non-exclusive distribution rights it
     received under its 1995 stock subscription agreement with ICO.  Net of
     costs associated with transferring the facility, the corporation recognized
     income of $4,303,000 from the settlement in 1998.  This income is recorded
     in "Other income (expense), net" on the income statement.

     Realized Gains (Losses).  The corporation realized gains of $29,701,000,
     $14,635,000 and $1,987,000 from the sale of investments during 1999, 1998
     and 1997, respectively. In 1998, the corporation also wrote-off a
     $1,950,000 investment accounted for using the cost method.  These amounts
     are reported in "Other income (expense), net" on the income statement.

6.   IMPAIRMENT OF LONG-LIVED ASSETS

     In the third quarter of 1998, the corporation recorded a non-cash
     impairment loss of $14,000,000 related to the write-down of the goodwill
     ($9,434,000) and plant and equipment ($4,566,000) of BelCom, COMSAT
     International's company operating in

                                      62
<PAGE>

     Russia and the Commonwealth of Independent States (CIS). Due to the
     worsening economic conditions in Russia and the CIS and BelCom's
     deteriorating performance, management determined that the corporation's
     investment in BelCom should be reduced. The impairment loss was determined
     based on a discounted analysis of expected cash flows.

7.   DISCONTINUED OPERATIONS

     The corporation began accounting for Ascent Entertainment Group, Inc., its
     former entertainment subsidiary, and substantially all of the assets and
     operations of COMSAT RSI, Inc. (CRSI), its former manufacturing subsidiary,
     as discontinued operations in the second quarter of 1997.

     Ascent Entertainment Group, Inc.  The corporation distributed its 80.67%
     interest in Ascent through a tax-free dividend to shareholders on June 27,
     1997.  COMSAT shareholders of record on June 19, 1997 received 0.4888 of a
     share of Ascent common stock for each share of COMSAT common stock owned.
     The tax-free dividend of $194,633,000 was recorded as a reduction of
     COMSAT's consolidated retained earnings.

     Prior to being accounted for as a discontinued operation, Ascent reported
     revenues of $177,481,000 and a loss from operations of $17,779,000 (net of
     a $5,047,000 tax benefit) in 1997.  The loss on disposal of Ascent in 1997
     was $11,289,000 (including a tax expense of $2,194,000).

     COMSAT RSI, Inc.  On February 25, 1998, the corporation sold substantially
     all of the assets of CRSI Acquisition, Inc., d/b/a COMSAT RSI Jefa Wireless
     Systems (JEFA), a wholly-owned subsidiary of CRSI engaged in the wireless
     communications integration and intelligent transportation systems business.
     Pursuant to the sale agreement, the corporation assigned to the buyer its
     rights in certain contracts and made a payment of $4,663,000 to the
     purchaser, net of a working capital adjustment at closing.

     On June 25, 1998, the corporation completed the sale of substantially all
     of CRSI to a subsidiary of TBG Industries, Inc. for cash proceeds of
     $111,864,000, after adjusting for changes in inter-company loans and
     advances.

     In connection with the sale of CRSI and JEFA, the corporation and
     respective purchasers agreed to indemnify the other against certain losses.
     In the case of the CRSI sale, the corporation's indemnification obligations
     are generally limited to losses incurred in excess of an agreed threshold
     amount ($6,700,000) and are capped at a maximum agreed threshold amount
     ($28,000,000) in respect of claims made within an agreed survival period
     (generally, approximately two years).  In certain instances, however, the
     corporation's indemnification obligations are not subject to those
     limitations.

     COMSAT retained and is completing a long-term construction contract for a
     radio astronomy telescope in Green Bank, West Virginia.  The corporation
     also has retained a claim against the prime contractor to recover
     $29,000,000 in costs incurred in performing the Green Bank contract, which
     are in excess of the original contract value.  The prime contractor has
     filed a counterclaim seeking $13,141,000 in damages for delay.  The claim
     and counterclaim are currently in arbitration.  There can be no assurance
     that the

                                      63
<PAGE>

     corporation will be successful in collecting all or any portion of this
     claim, or that the corporation will prevail in defense of the counterclaim.

     Electromechanical Systems, Inc. (EMS) was excluded from the CRSI sale and
     retained by the corporation pending possible sale.  Effective December 31,
     1999, the corporation will report EMS in continuing operations since a sale
     has not been consummated.  The estimated loss on disposal of CRSI in 1997
     did not include an estimated loss on disposal for EMS.  EMS' assets,
     revenues and income have not been material to the corporation's financial
     position or operating results.  The corporation plans to continue to hold
     EMS for sale.

     The loss upon disposition of discontinued operations is based upon
     management's best estimates of the estimated costs to complete the Green
     Bank contract, the amount to be realized from the $29,000,000 Green Bank
     contract arbitration claim, potential indemnification claims and other
     costs related to the discontinued operations.  These estimates could change
     as additional costs are incurred to complete the Green Bank contract, upon
     resolution of the arbitration and upon resolution of other matters related
     to the CRSI discontinued operations.

     Prior to being accounted for as a discontinued operation, CRSI reported
     revenues of $121,291,000 and income of $207,000 (net of a $46,000 tax
     expense) in 1997.  The estimated loss on disposal of CRSI in 1997 was
     $60,207,000 (net of a $19,926,000 tax benefit).

     The net assets of CRSI remaining at December 31, 1999 and 1998 amounted to
     $10,493,000 and $15,016,000, respectively, and primarily consist of
     receivables on long-term contracts, fixed assets, current liabilities and
     the remaining reserve for estimated loss on disposal.  Of these amounts,
     $9,162,000 and $2,052,000 are reported in "Other assets" at December 31,
     1999 and 1998, respectively.

8.   DEBT

     The corporation's capital and debt-financing activities are currently
     regulated by the FCC.  The corporation is required to submit a
     capitalization plan to the FCC for review annually.  Under existing FCC
     guidelines, the corporation is subject to a limit of $200,000,000 in short-
     term borrowings, a maximum long-term debt-to-total-capital ratio of 45% and
     a defined interest coverage ratio of 2.3 to 1.  At December 31, 1999, the
     corporation was in compliance with those guidelines.  We anticipate that,
     under the ORBIT Act, FCC regulation of our capital structure and the
     resulting capitalization requirements will be eliminated.







                                      64
<PAGE>

     Long-Term Debt.  Long-term debt, including the corporation's share of
     INTELSAT and Inmarsat debt, at each year end consists of:

<TABLE>
<CAPTION>
     In thousands                                          1999       1998
     -----------------------------------------------------------------------
     <S>                                                 <C>        <C>
     8.125% notes due 2004                               $ 70,475   $ 70,475
     8.95% notes due 2001                                  75,000     75,000
     6.75% INTELSAT Eurobonds due 2000                     29,758     26,980
     7.375% INTELSAT Eurobonds due 2002                    39,677     35,973
     8.375% INTELSAT Eurobonds due 2004                    39,677     35,973
     6.625% INTELSAT Asian bonds due 2004                  39,677     35,973
     8.125% INTELSAT Eurobonds due 2005                    39,677     35,973
     INTELSAT capital lease                                12,395          -
     Inmarsat lease financing obligations                       -     82,135
     Medium-term notes, 7.7%-8.66%, due 2006-2007          64,000     64,000
     Discounts on notes payable                              (571)      (688)
                                                         -------------------
     Total                                                409,765    461,794
     Less current portion                                    (786)   (14,962)
                                                         -------------------
     Total long-term debt                                $408,979   $446,832
                                                         ===================
    </TABLE>

     Maturities of long-term debt (excluding the 6.75% INTELSAT Eurobonds
     discussed below) over the next five years are $786,000 in 2000, $75,974,000
     in 2001, $40,827,000 in 2002, $1,228,000 in 2003 and $150,793,000 in 2004.

     Commercial Paper.  The corporation issues short-term commercial paper as
     needed with repayment terms of 90 days or less under a $140,000,000
     program.  The corporation had no borrowings at December 31, 1999 or 1998.

     Credit Facilities.  The corporation has a $140,000,000 revolving credit
     agreement, which expires in December 2000 and provides a backup source of
     credit to the commercial paper program.  There have been no borrowings
     under this agreement.

     INTELSAT Eurobonds.  In January 2000, INTELSAT refinanced its 6.75%
     Eurobonds due 2000 with borrowings under its commercial paper program.
     INTELSAT also established the necessary credit facilities, through its
     revolving credit agreement, to refinance the commercial paper on a long-
     term basis.  Therefore, the 6.75% Eurobonds remain classified in long-term
     debt at December 31, 1999 because it is INTELSAT's intent to refinance its
     commercial paper on a long-term basis.

     Early Extinguishment of Debt.  The corporation repurchased $89,525,000 of
     its 8.125% notes and also $10,000,000 of its 7.7% medium-term notes with
     short-term debt in 1997. The early extinguishment of debt resulted in an
     extraordinary loss of $6,231,000 ($3,946,000 net of tax).

     Inmarsat Lease Financing Obligations.  Inmarsat entered into capital lease
     agreements to finance the construction of its second- and third-generation
     satellites.  The corporation's share of these lease obligations is included
     in long-term debt at December 31, 1998.

                                      65
<PAGE>

     Financial Instruments.  The fair value of long-term debt (excluding
     capitalized leases) shown below was estimated by obtaining a yield-adjusted
     price for each obligation from an investment banker.  The fair value of the
     Monthly Income Preferred Securities was determined by using the quoted
     market price.  The fair values of the corporation's other financial
     instruments are approximately equal to their carrying amounts.  The
     carrying amount and fair value at each year end are as follows:

<TABLE>
<CAPTION>
                                                   1999                1998
                                          --------------------  ------------------
                                            Carrying    Fair    Carrying    Fair
                 In thousands                Amount    Value     Amount    Value
     -----------------------------------------------------------------------------
     <S>                                    <C>       <C>       <C>       <C>
     8.125% notes due 2004                  $ 70,475  $ 70,528  $ 70,475  $ 77,971
     8.95% notes due 2001                     75,000    76,518    75,000    80,525
     INTELSAT bonds                          188,466   192,266   170,872   183,974
     Medium-term notes                        64,000    62,392    64,000    72,162
     Monthly income preferred securities     200,000   161,500   200,000   203,000
</TABLE>

9.   MONTHLY INCOME PREFERRED SECURITIES

     In July 1995, COMSAT Capital I, L.P.  (COMSAT Capital) issued $200,000,000
     of Monthly Income Preferred Securities (MIPS).  COMSAT Capital is a limited
     partnership formed for the sole purpose of issuing the MIPS and loaning the
     proceeds to COMSAT, the managing general partner.  The MIPS were issued at
     a par value of $25 per share, and dividends are payable monthly at an
     annual rate of 8.125%.  The MIPS are callable by the issuer after July 2000
     at par value.

     The proceeds of the MIPS were loaned to COMSAT under the terms of a 8.125%,
     30-year subordinated debenture agreement.  This agreement allows COMSAT to
     extend the maturity of the debentures until 2044, provided that COMSAT
     satisfies certain financial covenants.  The loan between the partnership
     and COMSAT has been eliminated in consolidation.  The $200,000,000 of MIPS
     is shown on the corporation's consolidated balance sheet as "preferred
     securities issued by subsidiary."  The dividends on these securities are
     recorded as minority interest expense of $16,250,000 in "Other income
     (expense), net" on the income statement for each of the three years ended
     December 31, 1999, 1998 and 1997.

10.  COMMITMENTS

     Property and Equipment.  As of December 31, 1999, the corporation had
     commitments to acquire property and equipment totaling $226,755,000.  Of
     this total, $204,440,000 is payable over the next three years.  These
     commitments are related principally to the corporation's share of INTELSAT
     satellite acquisition programs.

     Leases.  The corporation leases its headquarters building from a
     partnership in which the corporation owns a 50% interest.  The initial term
     of the lease expires in 2008.  In addition to lease payments, the
     corporation is responsible for taxes, insurance and maintenance of the
     building.  The corporation also has leases of other property and equipment.
     Rental expense under operating leases was $8,668,000 in 1999, $7,579,000 in
     1998 and $5,367,000 in 1997.  The future rental payments under operating
     leases are $6,192,000 in 2000, $6,235,000 in 2001, $6,212,000 in 2002,
     $5,372,000 in 2003, $5,161,000 in 2004 and $12,528,000 thereafter.

                                      66
<PAGE>

     Space Segment.  At December 31, 1999, the corporation's commitments for
     space segment capacity from Inmarsat, New Skies and other parties are
     $26,112,000 in 2000, $25,391,000 in 2001, $23,447,000 in 2002, $16,631,000
     in 2003, $13,362,000 in 2004 and $34,851,000 thereafter.

11.  REGULATORY ENVIRONMENT AND CONTINGENCIES

     Regulatory Environment.  COMSAT is subject to regulation by the FCC, under
     the Communications Satellite Act and the Communications Act, with respect
     to various aspects of its COMSAT World Systems (CWS) and COMSAT Mobile
     Communications (CMC) businesses.  FCC decisions and policies have had and
     will continue to have a significant impact on the corporation.  In
     addition, the telecommunications companies which the corporation operates
     in various developing countries are subject to regulation by the local
     regulatory bodies in those countries.  Because the regulatory environment
     in those countries is rapidly evolving as the local economies are
     developing, these companies face increasing business uncertainties that
     could have an adverse effect on their operations.

     In March 2000, Congress passed and the President signed the ORBIT Act.  The
     ORBIT Act amends the Satellite Act and repeals upon enactment the special
     restrictions on the ownership of COMSAT common stock and FCC regulation of
     COMSAT's capital structure.  The ORBIT Act also establishes deadlines for
     the privatization of INTELSAT and the completion of initial public
     offerings by INTELSAT, Inmarsat and New Skies, as well as specific criteria
     for determining whether the privatizations of those entities are pro-
     competitive.  If those criteria are not met, the FCC may limit access by
     U.S. users to the satellite capacity of the privatized entities for so-
     called "non-core" services.  During the transition to privatization, the
     ORBIT Act also restricts INTELSAT, Inmarsat and New Skies from providing
     certain additional services.  The ORBIT Act also codifies an FCC action
     taken in 1999 that permits U.S. users and telecommunications providers to
     acquire satellite capacity directly from INTELSAT without going through
     COMSAT ("Level 3" direct access).  In addition, the ORBIT Act removes
     provisions of the Satellite Act providing for Presidentially-appointed
     COMSAT directors and removes COMSAT's immunity from suit in its capacity as
     an INTELSAT Signatory, subject to a limited exception for actions taken
     pursuant to U.S. Government instruction.

     Prior to passage of the ORBIT Act, the FCC adopted a new policy of direct
     access to INTELSAT in the United States.  Specifically, the FCC authorized
     "Level 3" direct access.  The FCC rejected requests to allow entities other
     than COMSAT to invest in INTELSAT proportionate to their usage, finding
     that the FCC lacked the authority under the Satellite Act to permit "Level
     4" direct access.  In addition, the FCC authorized COMSAT to file a tariff
     to charge all direct access users a surcharge to recover the costs incurred
     by COMSAT as signatory to INTELSAT.  COMSAT's new direct access tariff
     became effective on December 6, 1999.  Under the tariff, direct access
     users must pay COMSAT 5.58% of the rate the direct access users pay to
     INTELSAT for capacity ordered directly.  The level of this surcharge will
     be reviewed in 2001, and the surcharge will be eliminated upon
     privatization of INTELSAT.  The FCC also rejected claims that COMSAT's
     long-term carrier contracts should be subject to government abrogation
     under the "fresh look" doctrine, thus preserving COMSAT's backlog of
     contracted

                                      67
<PAGE>

     capacity commitments. Moreover, the FCC declined to pursue claims for
     "portability" of COMSAT's capacity to users.

     In April 1998, the FCC granted the corporation's petition to be deregulated
     and reclassified CWS as a "non-dominant" telecommunications carrier in its
     major markets. The FCC's decision eliminates rate-of-return restrictions,
     structural separation regulation and 14-day advance tariff notification in
     regard to approximately 90% of COMSAT's INTELSAT business.  It also allows
     CWS to integrate earth station and space segment services, requiring only
     that COMSAT list those offerings separately in tariff filings at the FCC.
     In February 1999, the FCC further deregulated COMSAT by eliminating rate of
     return regulation on so-called "non-competitive thin routes" and occasional
     use "single carrier" markets.  In its place, the FCC adopted an incentive-
     based price policy for COMSAT's provision of INTELSAT services in these
     markets.  The FCC also adopted a procedure for reclassifying these markets
     as non-dominant as competition is introduced.

     Litigation.  The corporation and its subsidiaries are a party to various
     lawsuits and arbitration proceedings and are subject to various claims and
     inquiries, which generally are incidental to the ordinary course of their
     business.  See Note 7 for a description of an arbitration proceeding
     related to the Green Bank contract to which the corporation is a party.
     The outcome of legal proceedings cannot be predicted with certainty.  Based
     on currently available information, however, management does not believe
     that the outcome of any matter which is pending or threatened, either
     individually or in the aggregate, will have a material adverse effect on
     the long-term consolidated financial condition of the corporation.
     Nevertheless, the outcome of such matters could materially affect
     consolidated results of operations in a given year or quarter.

     In January 1999, the U.S. Department of Justice announced that it had
     joined a lawsuit filed by former employees of Electromechanical Systems,
     Inc. (EMS), a wholly-owned subsidiary of the corporation, under the qui tam
     provisions of the Civil False Claims Act. The corporation acquired EMS in
     1994 as part of the corporation's acquisition of Radiation Systems, Inc.
     The lawsuit names EMS, the corporation and several current and former EMS
     employees and seeks potential damages estimated at up to $40,000,000. The
     Department of Justice has been granted a stay of the lawsuit pending the
     outcome of a separate criminal investigation into the same allegations that
     is currently being conducted by the U.S. Attorney's office in Tampa,
     Florida.   The corporation intends to vigorously defend this matter but
     cannot predict the ultimate outcome or estimate the amount of liability, if
     any, that could result from any civil or criminal sanctions the government
     may seek.  There can be no assurances, however, that any such liability
     would not be material.

     Government Contracts and Investigations.  The corporation and its
     subsidiaries are subject to, and are currently a party to, audits and
     investigations by various government agencies which oversee contract
     performance in connection with the corporation's contracts with the U.S.
     Government or which regulate the corporation's compliance with federal and
     state laws.  If the corporation is found liable for wrongdoing as a result
     of such an audit or investigation, the corporation could be fined or
     subjected to other punitive actions.

                                      68
<PAGE>

     In response to a 1998 communication from an agency of the federal
     government regarding the corporation's compliance with export control laws,
     the corporation made a disclosure with respect to certain of its export
     licensing activities in 1998.  In addition, the corporation has responded
     to a subpoena from a separate agency of the federal government requesting
     certain information in connection with a possible criminal investigation of
     the same matter.  The corporation cannot predict at this time whether or to
     what extent the government may seek sanctions for any possible violations
     of the export control laws and, therefore, cannot predict the ultimate
     outcome of this matter or estimate the amount of liability, if any, that
     could result from any civil or criminal sanctions the government may seek.
     There can be no assurances, however, that any such liability would not be
     material.

12.  STOCKHOLDERS' EQUITY

     Comprehensive Income (Loss).  In 1998, the corporation adopted SFAS No.
     130, "Reporting Comprehensive Income."  The statement established rules for
     the reporting of comprehensive income and its components.  Comprehensive
     income consists of net income (loss), unrealized gain (loss) on securities,
     foreign currency translation and minimum pension liability adjustments and
     is presented in the Statements of Changes in Consolidated Stockholders'
     Equity.  The adoption of SFAS No. 130 had no impact on total stockholders'
     equity.  Prior years' financial statements have been reclassified to
     conform to the SFAS No. 130 requirements.

     The balance of the components of accumulated other comprehensive income
     (loss), net of tax, at December 31, 1999 and 1998 are as follows:

     <TABLE>
     <CAPTION>
     In thousands                       1999       1998
     ----------------------------------------------------
     <S>                              <C>        <C>
     Unrealized gain on securities    $  2,153   $ 12,779
     Foreign currency translation      (66,419)   (14,783)
     Minimum pension liability          (3,987)    (4,541)
                                    ---------------------
     Total                            $(68,253)  $ (6,545)
                                    =====================
     </TABLE>

     The unrealized gain on securities is net of reclassification adjustments of
     $12,373,000 and $1,707,000, net of tax, in 1999 and 1998, respectively, for
     net realized gains on securities included in net income (loss).

                                      69
<PAGE>

     Earnings Per Share.  The following reconciliation presents the calculation
     of the corporation's basic and diluted earnings per share amounts:

<TABLE>
<CAPTION>
     In thousands, except per share amounts          1999     1998     1997
     ------------------------------------------------------------------------
     <S>                                          <C>       <C>      <C>
     Income (loss) from continuing operations
     before extraordinary item                   $ (2,566)   $26,417  $28,568
                                                 =========   =======  =======

     Basic:
       Weighted average shares outstanding          52,694    51,673   48,924
                                                 =========   =======  =======
         Per share                                 $ (0.05)  $  0.51  $  0.58
                                                 =========   =======  =======

     Assuming dilution:
       Weighted average shares outstanding          52,694    51,673   48,924
       Stock options                                     -     1,415      766
       Restricted stock awards and units                 -       195      313
                                                 ---------   -------  -------
         Total                                      52,694    53,283   50,003
                                                 =========   =======  =======
           Per share                               $ (0.05)  $  0.50  $  0.57
                                                 =========   =======  =======
</TABLE>

     Stock Incentive Plans.  The corporation has stock incentive plans that
     provide for the issuance of stock options, restricted stock awards, stock
     appreciation rights and restricted stock units.  A total of 6,620,000
     shares of common stock may be granted under the current plans.  As of
     December 31, 1999, 255,000 shares of the corporation's treasury stock and
     6,365,000 unissued common shares were reserved for these plans.  As of
     December 31, 1999, no stock appreciation rights were outstanding.

     Stock Options.  Under the current plans, the exercise price for stock
     options may not be less than the fair market value of the stock when
     granted.  Options generally vest over three years and expire after 10 to 15
     years.

     Stock option activity was as follows:

<TABLE>
<CAPTION>
Options in thousands                    1999      1998     1997
----------------------------------------------------------------
<S>                                    <C>      <C>       <C>
Outstanding at January 1                3,431     5,152    4,478
   Granted                                813       997      655
   Exercised                             (406)   (2,465)    (848)
   Canceled                              (182)     (253)    (283)
   Adjustment due to Ascent spinoff         -         -    1,150
                                     --------   -------  -------
Outstanding at December 31              3,656     3,431    5,152
Exercisable at December 31              2,097     1,709    3,300
Average price
   Outstanding at January 1            $21.46   $ 18.33   $22.20
   Granted                              29.30     31.14    25.01
   Exercised                            15.21     18.91    18.26
   Canceled                             28.77     20.75    18.68
   Adjustment due to Ascent spinoff         -         -    17.84
   Outstanding at December 31           23.54     21.46    18.33
   Exercisable at December 31           19.78     17.79    18.92
</TABLE>

                                      70

<PAGE>

     The weighted average fair value at date of grant for options granted during
     1999, 1998 and 1997 was $16.08, $12.72 and $6.89, respectively.  The fair
     value of options at date of grant was estimated using the Black-Scholes
     model assuming an expected option life of six years and the following
     weighted average assumptions:

<TABLE>
<CAPTION>
     Per share          1999    1998    1997
     ---------------------------------------
     <S>               <C>     <C>     <C>
     Dividend yield     0.61%   0.84%   3.29%
     Interest rate      5.18%   5.35%   6.47%
     Volatility        56.13%  36.82%  37.21%
</TABLE>

     Stock options outstanding and exercisable at December 31, 1999, are as
follows:

<TABLE>
<CAPTION>
     In thousands, except per share amounts and years
     --------------------------------------------------------------------------------------------------------------------
                                         Options Outstanding                                  Options Exercisable
                               -----------------------------------------------        -----------------------------------
                                                       Weighted Average
                                           ------------------------------
       Exercise Price             Number          Remaining           Exercise           Number           Weighted Average
            Range              Outstanding      Term in Years           Price          Exercisable         Exercise Price
     ------------------       -------------     -------------        ---------        -------------       ----------------
     <S>         <C>           <C>                <C>                  <C>             <C>                <C>
     $ 4.81  -   $ 8.60               113               6.3             $ 7.06                 113                $ 7.06
      14.51  -    18.85               775               6.2              16.00                 775                 16.00
      20.05  -    29.90             1,877               8.1              23.98                 969                 21.28
      30.12  -    38.79               891               8.9              31.23                 240                 31.82
     ------------------       -------------     -------------        ---------        -------------       ----------------
       4.81  -    38.79             3,656               7.8              23.54               2,097                 19.78
     ==================       =============     =============        =========        =============       ================
</TABLE>

     Restricted Stock Awards.  Restricted stock awards are shares of stock that
     are subject to restrictions on their sale or transfer.  In 1999, 1998 and
     1997, 33,600, 30,800 and 152,470 "performance-based" restricted stock
     awards were granted, respectively.  Grantees have record ownership of the
     underlying securities; however, all such securities are subject to
     forfeiture at the end of a two-year performance period.  In addition to the
     two-year performance period, the awards are further subject to a three-year
     vesting schedule.  The weighted average fair value at date of grant for
     restricted stock awards granted during 1999, 1998 and 1997 was $29.13,
     $30.81 and $23.71 per share, respectively, which in each case was equal to
     the market value of the common stock at the date of grant.

     The expected cost of all grants is amortized over the performance and
     vesting period. The expense (benefit) for all outstanding grants in 1999,
     1998 and 1997 was $(80,000), $1,071,000 and $870,000, respectively.

     Restricted Stock Units.  Restricted stock units entitle the holder to
     receive a combination of stock and cash equal to the market price of common
     stock for each unit, when vested.  These units vest over three years.
     During 1999, 1998 and 1997, respectively, 22,000, 36,850 and 54,360
     restricted stock units were granted.  The weighted average fair value for
     the units granted during 1999, 1998 and 1997 was $29.34, $32.32 and $25.50
     per unit, respectively, which in each case was equal to the market value of
     the common stock at the date of grant.  Partially vested restricted stock
     units outstanding totaled 69,772 at December 31, 1999 and 80,036 at
     December 31, 1998.  The cost of these awards is amortized to expense over
     the three-year vesting period.  The expense (benefit) in 1999, 1998 and
     1997 was $(30,000), $1,012,000 and $575,000, respectively.

                                      71

<PAGE>

     Employee Stock Purchase Plan.  Employees may purchase stock at a discount
     through the corporation's Employee Stock Purchase Plan.  The purchase price
     of the shares is the lower of 85% of the fair market value of the stock on
     the offering date, or 85% of the fair market value of the stock on the last
     business day of each month throughout the one-year offering period.

     The purchase price on the respective offering dates for calendar years
     1999, 1998 and 1997, was $30.92, $19.76 and $21.36 (adjusted to $17.22
     subsequent to the Ascent spinoff), respectively.

     There were 132,000 shares, 196,000 shares and 181,000 shares issued under
     this plan at weighted average prices of $23.45, $19.76 and $18.26 for the
     years ended December 31, 1999, 1998 and 1997, respectively.  As of December
     31, 1999, a total of 1,249,000 shares of the corporation's unissued common
     stock have been reserved for this plan.

     The weighted average fair value of the purchase rights granted pursuant to
     this plan in 1999, 1998 and 1997 was $11.94, $5.66 and $5.95, respectively.
     The fair value of each purchase right was estimated using the Black-Scholes
     model as of January 1 of each year assuming each plan year consisted of 12
     one-month options and the following weighted average assumptions:

                <TABLE>
                <CAPTION>
                Per share          1999    1998    1997
                ---------------------------------------
                <S>               <C>     <C>     <C>
                Dividend yield     0.61%   0.84%   3.30%
                Interest rate      4.63%   5.56%   5.39%
                Volatility        55.79%  36.52%  35.79%
                </TABLE>

     Proforma Disclosures.  Had stock-based compensation cost for the
     corporation's stock incentive plans been determined based on the fair value
     at the grant dates consistent with SFAS No.123, the corporation's income
     (loss) from continuing operations before extraordinary item and per share
     amounts would have been as follows for each year:

<TABLE>
<CAPTION>
In thousands, except per share amounts                     1999       1998      1997
--------------------------------------------------------------------------------------
<S>                                                      <C>        <C>       <C>
Income (loss) from continuing operations
before extraordinary item:
     As reported                                          $(2,566)   $26,417   $28,568
     Proforma                                              (7,945)    23,380    26,024
Earnings (loss) per common share - basic:
     As reported                                          $ (0.05)   $  0.51   $  0.58
     Proforma                                               (0.15)      0.45      0.53
Earnings (loss) per common share - assuming dilution:
     As reported                                          $ (0.05)   $  0.50   $  0.57
     Proforma                                               (0.15)      0.44      0.52
</TABLE>

     The proforma effect on income (loss) from continuing operations before
     extraordinary item for such years is not representative of its effect for
     future years because it does not take into consideration proforma
     compensation expense related to grants made prior to 1995.

                                      72

<PAGE>

13.  PENSION AND OTHER BENEFIT PLANS

     The corporation has a non-contributory, defined benefit pension plan for
     qualifying employees.  Pension benefits are based on years of service and
     compensation prior to retirement.  The components of net pension expense
     (benefit) for each year are:

     <TABLE>
     <CAPTION>
     In thousands                                1999       1998       1997
     -----------------------------------------------------------------------
     <S>                                       <C>        <C>        <C>
     Service cost                              $  2,972   $  2,401   $ 2,005
     Interest cost                                9,037      8,400     7,690
     Expected return on plan assets             (11,856)   (10,158)   (9,039)
     Amortization of transition asset                 -     (1,195)   (1,208)
     Amortization of prior service costs            363        382       386
                                             -------------------------------
     Net periodic pension expense (benefit)    $    516   $   (170)  $  (166)
                                             ===============================
     </TABLE>

     The following tables show a reconciliation of the changes in the pension
     plan's benefit obligation and fair value of the plan assets as well as the
     funded status of the plan as of December 31, 1999 and 1998:

     <TABLE>
     <CAPTION>
     In thousands                                        1999       1998
     ------------------------------------------------  -------------------
     <S>                                               <C>        <C>
     Reconciliation of benefit obligation
     Benefit obligation at January 1                   $134,783   $119,826
     Service cost                                         2,972      2,401
     Interest cost                                        9,037      8,400
     Actuarial (gain) loss                              (14,401)     8,654
     Benefits paid from plan assets                      (4,941)    (4,498)
                                                       --------   --------
     Benefit obligation at December 31                 $127,450   $134,783
                                                       ========   ========

     Reconciliation of fair value of plan assets
     Fair value of plan assets at January 1            $167,605   $150,874
     Actual return on plan assets                        21,999     21,229
     Benefits paid from plan assets                      (4,941)    (4,498)
                                                       --------   --------
     Fair value of plan assets at December 31          $184,663   $167,605
                                                       ========   ========

     Funded status
     Funded status at December 31                      $ 57,213   $ 32,822
     Unrecognized gain                                  (62,762)   (38,218)
     Unrecognized prior service cost                        783      1,146
                                                       --------   --------
     Accrued pension liability                         $ (4,766)  $ (4,250)
                                                       ========   ========

     Assumed discount rate                                 7.75%      6.75%
     Assumed rate of compensation increase                 5.50%      5.50%
     Expected rate of return on pension plan assets        9.50%      9.00%
     </TABLE>


     Supplemental Executive Retirement Plan.  The corporation's supplemental
     executive retirement plan is an unfunded defined benefit plan.  The
     components of net pension expense under this plan for each year are:

     <TABLE>
     <CAPTION>
     In thousands                              1999    1998    1997
     ---------------------------------------------------------------
     <S>                                      <C>     <C>     <C>
     Service cost                             $  336  $  324  $  278
     Interest cost                             1,735   1,703   1,409
     Amortization of transition obligation       266     266     266
     Amortization of losses                    1,003     842     210
                                            --------  ------  ------
     Net periodic pension expense             $3,340  $3,135  $2,163
                                            ========  ======  ======
     </TABLE>


                                      73
<PAGE>

     The following tables show a reconciliation of the changes in the
     supplemental plan's benefit obligation and fair value of the plan assets as
     well as the funded status of the plan as of December 31, 1999 and 1998:

     <TABLE>
     <CAPTION>
     In thousands                                         1999       1998
     ----------------------------------------------------------------------
     <S>                                                <C>        <C>
     Reconciliation of benefit obligation
     Benefit obligation at January 1                    $ 26,388   $ 21,193
     Service cost                                            336        324
     Interest cost                                         1,735      1,703
     Actuarial (gain) loss                                  (119)     4,895
     Benefits paid                                        (1,746)    (1,727)
                                                        --------   --------
     Benefit obligation at December 31                  $ 26,594   $ 26,388
                                                        ========   ========

     In thousands                                           1999       1998
     ----------------------------------------------------------------------
     Reconciliation of fair value of plan assets
     Fair value of plan assets at January 1             $      -   $      -
     Employer contributions                                1,746      1,727
     Benefits paid                                        (1,746)    (1,727)
                                                        --------   --------
     Fair value of plan assets at December 31           $      -   $      -
                                                        ========   ========

     Funded status
     Funded (unfunded) status at December 31            $(26,594)  $(26,388)
     Unrecognized loss                                     7,694      8,816
     Unrecognized transition obligation                      532        798
     Additional minimum liability                         (6,884)    (8,042)
                                                        --------   --------
     Total accrued liability                            $(25,252)  $(24,816)
                                                        ========   ========

     Intangible asset                                   $    532   $    798
     Amount recognized in accumulated
      other comprehensive income (loss)                 $  6,353   $  7,244

     Assumed discount rate                                  7.75%      6.75%
     Assumed rate of compensation increase                  5.50%      5.50%
     </TABLE>

     401(k) Plan.  The corporation has a 401(k) plan for qualifying employees.
     A portion of employee contributions is matched by the corporation with
     shares of its common stock. The number of shares contributed to the plan
     and the expense recognized each year were as follows: 1999 - 72,000 shares
     ($2,034,000), 1998 - 68,000 shares ($2,186,000) and 1997 - 108,000 shares
     ($2,433,000).

     Post-retirement Benefits.  The corporation provides health and life
     insurance benefits to qualifying retirees.  The expected cost of these
     benefits is recognized during the years in which employees render service.
     The components of net post-retirement benefit expense for each year are:

     <TABLE>
     <CAPTION>
     In thousands                             1999      1998      1997
     ------------------------------------------------------------------
     <S>                                    <C>       <C>       <C>
     Service cost                           $ 1,165   $   895   $   666
     Interest cost                            2,469     2,252     1,877
     Amortization of net gains               (1,901)   (1,841)   (2,360)
                                          ---------   -------   -------
     Net post-retirement benefit expense    $ 1,733   $ 1,306   $   183
                                          =========   =======   =======
     </TABLE>


                                      74
<PAGE>

     The following tables show a reconciliation of the changes in the post-
     retirement plan's benefit obligation and fair value of the plan assets as
     well as the funded status of the plan as of December 31, 1999 and 1998:

<TABLE>
<CAPTION>
     In thousands                                     1999       1998
     ------------------------------------------------------------------
     <S>                                            <C>        <C>
     Reconciliation of benefit obligation
     Benefit obligation at January 1                $ 35,209   $ 28,890
     Service cost                                      1,165        895
     Interest cost                                     2,469      2,252
     Plan amendments                                  (1,332)      (573)
     Actuarial (gain) loss                            (2,375)     5,373
     Benefits paid                                    (1,581)    (1,628)
                                                    --------   --------
     Benefit obligation at December 31              $ 33,555   $ 35,209
                                                    ========   ========

     In thousands                                       1999       1998
     ------------------------------------------------------------------
     Reconciliation of fair value of plan assets
     Fair value of plan assets at January 1         $      -   $      -
     Employer contributions                            1,581      1,628
     Benefits paid                                    (1,581)    (1,628)
                                                    --------   --------
     Fair value of plan assets at December 31       $      -   $      -
                                                    ========   ========

     Funded status
     Funded (unfunded) status at December 31        $(33,555)  $(35,209)
     Unrecognized gain loss                           (3,830)    (1,455)
     Unrecognized gain from plan changes             (11,690)   (12,259)
                                                    --------   --------
     Accrued post-retirement benefit costs          $(49,075)  $(48,923)
                                                    ========   ========

     Assumed discount rate                              7.75%      6.75%
     Assumed rate of compensation increase              5.50%      5.50%
</TABLE>

     An 8.0% increase in health care costs was assumed for 1999 with the rate
     decreasing 0.5% each year to an ultimate annual rate of 5.5%.  A 1.0%
     change in the assumed health care cost trend rate would have the following
     impact on post-retirement benefit cost and obligation:

<TABLE>
<CAPTION>
                                                                   1.0% Change
                                                               ------------------
     In thousands                                              Increase  Decrease
     --------------------------------------------------------  ------------------
     <S>                                                       <C>       <C>
     Effect on total service and interest cost
       component of post-retirement benefit cost               $    567   $  (448)
                                                               ========   =======

     Effect on the post-retirement benefit obligation            $4,098   $(3,239)
                                                               ========   =======
</TABLE>


14.    INCOME TAXES

       Income (loss) from continuing operations before taxes and extraordinary
       item consisted of:

       <TABLE>
       <CAPTION>
       In thousands       1999       1998       1997
       ----------------------------------------------
       <S>              <C>        <C>        <C>
       United States    $ 19,081   $ 63,144   $47,927
       Foreign           (21,031)   (30,936)   (3,746)
                       ---------   --------   -------
       Total            $ (1,950)  $ 32,208   $44,181
                       =========   ========   =======
        </TABLE>

                                      75

<PAGE>

     The components of income tax expense on continuing operations are:

     <TABLE>
     <CAPTION>
     In thousands                      1999       1998      1997
     ---------------------------------------------------------------
     <S>                               <C>        <C>       <C>
     Federal:
        Current                        $ 22,488   $ 6,914   $15,783
        Deferred                        (17,989)    1,962    (2,162)
        Investment tax credits (net)     (1,671)   (1,687)   (1,837)
     State and local                       (136)   (2,369)    1,487
     Foreign                             (2,076)      971     2,342
                                     ----------   -------   -------
     Total                             $    616   $ 5,791   $15,613
                                     ==========   =======   =======
     </TABLE>

     The difference between income tax expense computed at the statutory Federal
     tax rate and the corporation's effective tax rate is:

<TABLE>
<CAPTION>
In thousands                                             1999      1998       1997
-----------------------------------------------------------------------------------
<S>                                                    <C>       <C>        <C>
Federal income taxes computed at the statutory rate    $  (686)  $ 11,273   $15,463
Foreign losses                                           3,768      5,389     3,654
Investment tax credits (net)                            (1,671)    (1,688)   (1,837)
Adjustment to estimated income tax accruals                  -    (14,208)     (839)
State income taxes, net of federal income taxes           (212)    (1,569)      972
Life insurance (net)                                    (1,304)    (1,115)   (1,183)
Other non-deductible costs                               1,287      1,612       671
Merger costs                                             1,962      1,467         -
Impairment loss                                              -      4,900         -
Inmarsat equity rate differences                        (2,263)         -         -
Other                                                     (265)      (270)   (1,288)
                                                     ---------   --------   -------
Income tax expense                                     $   616   $  5,791   $15,613
                                                     =========   ========   =======
</TABLE>

     The current and net non-current components of deferred tax accounts as
     shown on the balance sheet at December 31, 1999 and 1998 are:

     <TABLE>
     <CAPTION>
     In thousands                             1999        1998
     ------------------------------------  ---------------------
     <S>                                   <C>         <C>
     Current deferred tax asset            $  15,140   $   7,911
     Non-current deferred tax liability     (106,563)   (127,351)
                                           ---------   ---------
     Net liability                         $ (91,423)  $(119,440)
                                           =========   =========
     </TABLE>

                                      76

<PAGE>

     The deferred tax assets and liabilities at December 31, 1999 and 1998 are:

     <TABLE>
     <CAPTION>
     In thousands                              1999        1998
     -------------------------------------  ---------------------
     <S>                                    <C>         <C>
     Assets:
     Post-retirement benefits               $  23,451   $  23,425
     Accrued expenses                          39,985      42,787
     NOL carryforward                           7,634       9,818
     Long-term contract revenues                8,350       6,876
     Unrealized tax losses on securities       14,799           -
     Foreign tax credit carryforward                -       3,159
     Alternative minimum tax credit            31,346      31,454
     Other                                      4,050       4,954
                                            ---------   ---------
     Total deferred tax assets                129,615     122,473
                                            ---------   ---------

     Liabilities:
     Property and equipment                  (158,668)   (209,952)
     Unrealized gain on securities             (1,319)     (6,098)
     Foreign currency translation              (2,264)     (3,158)
     Basis in cost investment                 (21,155)    (22,705)
     Basis in equity investment               (37,632)          -
                                            ---------   ---------
     Total deferred tax liabilities          (221,038)   (241,913)
                                            ---------   ---------
     Net liability                          $ (91,423)  $(119,440)
                                            =========   =========
     </TABLE>

     In 1998 the corporation favorably resolved a state tax audit for the years
     1992 through 1996 that allowed the corporation to reverse previously
     accrued interest costs of $1,720,000 and state taxes of $2,238,000.  After
     federal taxes, the interest and state tax benefit increased net income in
     1998 by $2,573,000.

     In addition in 1998, the corporation reversed previously accrued interest
     costs of $2,456,000 and taxes of $15,100,000 for the years 1990 through
     1994 related to certain federal tax matters. Events during the third
     quarter of 1998 prompted the corporation to conclude that the amounts
     accrued were no longer required.  The interest and tax benefit increased
     net income in 1998 by $16,633,000.

     The corporation and its subsidiaries are subject to, and are currently a
     party to, federal, state and foreign tax audits in the ordinary course of
     their business.  The Internal Revenue Service (IRS) has completed
     examinations of the federal income tax returns of the corporation through
     1994.  The corporation is contesting adjustments proposed by the IRS on the
     1990 through 1994 income tax returns.  The corporation has also amended its
     returns and filed claims for refunds for 1979 through 1987, which the IRS
     has denied.  In 1996, the corporation filed suit in a U.S. District Court
     seeking the refunds which the IRS denied.  The suit remains pending and
     settlement discussions with the IRS and Department of Justice are at an
     advanced stage.  In addition, the corporation is currently contesting a
     value-added tax assessment in Argentina and an import tax assessment in
     Brazil.  The corporation is unable to predict the outcome of these matters
     or estimate the amount or timing of any settlement or tax liability that
     might result.  In the opinion of the corporation, adequate provision has
     been made for income and other taxes for all periods through 1999.

                                      77

<PAGE>

15.  BUSINESS SEGMENT INFORMATION

     The corporation reports operating results and financial data in four
     segments: COMSAT World Systems (CWS), COMSAT Mobile Communications (CMC),
     International (CI) and Laboratories (Labs).  CWS provides voice, data,
     Internet, video and audio communications services between the U.S. and
     other countries using the global satellite networks of INTELSAT and New
     Skies.  CWS also includes the operating results of COMSAT Government
     Systems, Inc. through September 18, 1999, the date it was merged with a
     subsidiary of Lockheed Martin, COMSAT Digital Teleport, Inc. and COMSAT
     General Corporation, which provide various satellite and ground segment
     services to commercial and government customers.  CMC provides voice, data,
     fax, telex and information services for ships, aircraft and land mobile
     applications throughout the world using the Inmarsat satellite system.
     Together, the CWS and CMC operating segments represent the corporation's
     Satellite Services business unit.

     International consists of activities undertaken by the corporation in its
     CI business.  CI operates an integrated group of telecommunications
     companies that are engaged principally in providing individualized digital
     network solutions to business clients and carriers in high-growth emerging
     markets overseas.

     Labs consists of activities undertaken by the corporation in its COMSAT
     Laboratories business, which provides technical consulting services and
     develops advanced communications technologies and products for satellite
     access and networking applications.

     The accounting policies of the operating segments are the same as those
     described in the summary of significant accounting policies.  The
     corporation evaluates the performance of its operating segments based on
     income (loss) before income taxes and interest costs, "Segment income
     (loss)."  Summarized financial information concerning the corporation's
     reportable segments is shown in the following tables.  The "Other" column
     includes the elimination of intersegment revenues, corporate related items,
     and interest costs, net of amounts capitalized.  Corporate assets,
     primarily consisting of short-term investments, net assets of discontinued
     operations, property and cash surrender value of life insurance policies,
     are reported in the "Other" column.  The operating segments' income (loss)
     and corporate related amounts equal the amount presented as income before
     taxes and extraordinary item in the consolidated income statements.

     CWS's segment income in 1998 includes a $4,303,000 gain from a settlement
     with ICO (see Note 5).

     CMC's segment loss in 1999 includes the $35,985,000 write-off of its direct
     investment in ICO and equity in the net loss of Inmarsat of $16,656,000,
     which includes CMC's share of Inmarsat's ICO write-off of $34,650,000 (see
     Note 5).  CMC's total assets in 1999 include the $169,474,000 equity
     investment in Inmarsat.

     CI's segment loss in 1998 includes a $14,000,000, non-cash impairment loss
     on long-lived assets (see Note 6).  CI's 1999 and 1998 segment loss
     includes realized gains of $25,671,000 and $14,635,000, respectively, from
     the sale of marketable equity securities.


                                      78

<PAGE>

<TABLE>
<CAPTION>
                                       SATELLITE SERVICES
                                --------------------------------
In thousands                       CWS        CMC       TOTAL        CI        LABS      OTHER       TOTAL
------------------------------------------------------------------------------------------------------------
<S>                              <C>       <C>        <C>         <C>        <C>       <C>        <C>
1999
Revenues:
     External customers          $341,154  $121,958   $  463,112  $108,365   $46,789   $      -   $  618,266
     Intersegment                   1,719     1,040        2,759       185     7,318    (10,262)           -
                               -----------------------------------------------------------------------------
     Total                        342,873   122,998      465,871   108,550    54,107    (10,262)     618,266
Segment income (loss)             137,068   (52,196)      84,872       142      (836)   (86,128)      (1,950)
Total assets                      816,444   278,372    1,094,816   253,008    21,235    282,665    1,651,724
Capital expenditures               76,195     8,770       84,965    36,334     2,141      4,860      128,300
Depreciation and amortization      98,304    19,736      118,040    40,561     1,309      4,877      164,787
------------------------------------------------------------------------------------------------------------

1998
Revenues:
     External customers          $301,781  $167,559   $  469,340  $113,106   $34,023   $      -   $  616,469
     Intersegment                   1,326     1,508        2,834       162     8,299    (11,295)           -
                               -----------------------------------------------------------------------------
     Total                        303,107   169,067      472,174   113,268    42,322    (11,295)     616,469
Segment income (loss)             113,110    31,864      144,974   (20,983)   (3,508)   (88,275)      32,208
Total assets                      784,192   454,696    1,238,888   342,704    13,454    195,752    1,790,798
Capital expenditures              129,497    28,646      158,143    61,727     1,266      3,593      224,729
Depreciation and amortization     112,283    64,148      176,431    38,675     1,214      3,563      219,883
------------------------------------------------------------------------------------------------------------

1997
Revenues:
     External customers          $285,179  $164,371   $  449,550  $ 88,550   $24,551   $      -   $  562,651
     Intersegment                   1,002     3,479        4,481     1,111    11,820    (17,412)           -
                               -----------------------------------------------------------------------------
     Total                        286,181   167,850      454,031    89,661    36,371    (17,412)     562,651
Segment income (loss)             102,646    23,854      126,500    (8,888)   (1,780)   (71,651)      44,181
Total assets                      761,338   509,504    1,270,842   322,704    14,133    287,096    1,894,775
Capital expenditures               88,120    54,457      142,577   114,110     1,173      1,639      259,499
Depreciation and amortization      97,821    57,204      155,025    25,623       991      2,567      184,206
------------------------------------------------------------------------------------------------------------
</TABLE>


     Related Party Transactions.  The corporation provides support services to
     INTELSAT, satellite capacity to Lockheed Martin and support services and
     satellite capacity to Inmarsat.  The revenues from these services were
     $35,343,000 in 1999, $15,385,000 in 1998 and $16,364,000 in 1997.  These
     revenues were recorded primarily in CWS, CMC and Labs.

     Major Customers. Revenues from three major customers contributed
     $226,776,000, $235,637,000 and $224,683,000 to the corporation's
     consolidated revenues in 1999, 1998 and 1997, respectively.


                                      79
<PAGE>

     Geographic Information.  Revenues are attributed to geographic areas based
     on the location of the assets producing the revenues.  Satellite services
     revenues generated through the INTELSAT, New Skies and Inmarsat satellites
     are ascribed to the United States.  The foreign amounts primarily consist
     of CI's companies in Latin America. Financial information relating to the
     corporation's operations by geographic area is as follows:

     <TABLE>
     <CAPTION>
                                  Revenues
                      --------------------------------
     In thousands       1999       1998        1997
     -------------------------------------------------
     <S>              <C>       <C>         <C>
     United States    $509,901  $  503,363  $  474,101
     Foreign           108,365     113,106      88,550
                      --------  ----------  ----------
     Total            $618,266  $  616,469  $  562,651
                      ========  ==========  ==========

     <CAPTION>
                      Property and Equipment
                      --------------------------------
     In thousands         1999        1998        1997
     -------------------------------------------------
     <S>              <C>       <C>         <C>
     United States    $716,917  $  954,953  $1,123,750
     Foreign           195,558     254,509     235,543
                      --------  ----------  ----------
     Total            $912,475  $1,209,462  $1,359,293
                      ========  ==========  ==========
     </TABLE>


                                      80
<PAGE>

16.  QUARTERLY FINANCIAL INFORMATION (Unaudited)

<TABLE>
<CAPTION>
In thousands, except per         1st                  2nd                  3rd                   4th               Total Year
 share amounts                 Quarter              Quarter              Quarter               Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                    <C>                 <C>                   <C>                 <C>
1999:
Revenues                        $144,541             $155,925             $155,705              $162,095             $618,266
Operating income                  12,776 (1)           17,949 (1)           15,821 (1)            15,549 (1)           62,095
Net income (loss)                 12,026 (2)           11,969 (3)          (18,402) (4)           (8,159) (5)          (2,566)
Earnings (loss) per share:
    Basic                           0.23                 0.23                (0.35)                (0.15)               (0.05)
    Assuming dilution               0.22                 0.22                (0.35)                (0.15)               (0.05)
Dividends per share                 0.05                 0.05                 0.05                  0.05                 0.20
Stock price:
    High                              36  11/16            35  1/8              37  1/16              29  15/16            37  1/16
    Low                               27                   27  13/16            26  5/8               15  3/8              15  3/8
    Close                             28  15/16            32  1/2              29  5/8               19  7/8              19  7/8
-----------------------------------------------------------------------------------------------------------------------------------
1998:
Revenues                        $144,717             $151,045             $158,415             $162,292              $616,469
Operating income                  19,676               20,962                2,377  (7)          16,487  (9)           59,502
Net income                         3,850  (6)           4,074                6,569  (8)          11,924  (10)          26,417
Earnings per share:
    Basic                           0.08                 0.08                 0.13                 0.23                  0.51
    Assuming dilution               0.07                 0.08                 0.12                 0.22                  0.50
Dividends per share                 0.05                 0.05                 0.05                 0.05                  0.20
Stock price:
    High                              36                   42   3/4             36   7/8             39  5/8               42  3/4
    Low                               21   5/8             27   3/4             21   13/16           32  7/16              21  5/8
    Close                             34   7/16            28   5/16            35   1/4             36                    36
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
    (1) Merger costs of $1,836,000, $2,057,000, $5,259,000 and $1,121,000 were
        incurred in the first through fourth quarters of 1999, respectively.
    (2) The first quarter of 1999 includes a pre-tax gain of $13,100,000 from
        the sale of a marketable equity security.
    (3) The second quarter of 1999 includes a pre-tax gain of $12,571,000 from
        the sale of a marketable equity security.
    (4) The third quarter of 1999 includes a pre-tax $35,985,000 write-off of
        the corporation's direct investment in ICO.
    (5) The fourth quarter of 1999 includes a pre-tax $34,650,000 loss from
        Inmarsat's write-off of its investment in ICO and a pre-tax gain of
        $2,922,000 from the sale of a marketable equity security.
    (6) The first quarter of 1998 includes the $1,950,000 non-cash write-off of
        an investment.
    (7) The third quarter of 1998 includes $3,500,000 of merger costs and a
        $14,000,000 non-cash impairment loss related to the write-down of long-
        lived assets.
    (8) The third quarter of 1998 includes a reversal of previously accrued
        interest costs and taxes totaling $19,206,000 net of tax, relating to
        the resolution of certain state and federal income tax matters.
    (9) The fourth quarter of 1998 includes merger costs of $2,025,000.
   (10) The fourth quarter of 1998 includes a pre-tax gain of $13,960,000
        from the sale of a marketable equity security and income of $4,303,000
        from a settlement with ICO.


                                      81
<PAGE>

Item 9: Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

     None.

                                   PART III

Item 10:  Directors and Executive Officers of the Registrant

                          DIRECTORS OF THE REGISTRANT

     The Satellite Act provided that COMSAT's Board of Directors was to consist
of 15 directors, of whom 12 were to be elected annually by the shareholders for
terms of one year and three were to be appointed by the President of the United
States, with the advice and consent of the U.S. Senate, for terms of three years
or until their successors have been appointed and qualified.  The ORBIT Act,
which was enacted into law in March 2000, repeals the provisions of the
Satellite Act prescribing Presidentially-appointed directors.  Prior to
enactment of the ORBIT Act, COMSAT's Board of Directors consisted of 13
directors, as there were two vacancies pending Presidential appointment.  The
term of COMSAT's remaining Presidentially-appointed director expired upon
enactment of the ORBIT Act.  COMSAT's Board of Directors currently consists of
12 directors, all of whom were elected by shareholders.

     The following sets forth certain information concerning the directors of
the Corporation.

BETTY C. ALEWINE, 51, has been President and Chief Executive Officer of COMSAT
since July 1996.  She was President, COMSAT International Communications from
January 1995 to July 1996, and was President, COMSAT World Systems from May 1991
to January 1995.  She joined COMSAT from MCI Communications Corporation in 1986
and has been a director of COMSAT since July 1996.  She also is a director of
New York Life Insurance Co., The Pittston Company, and the Cancer Research
Foundation of America, a not-for-profit corporation.  She is a member of the
Inter-American Development Bank Advisory Council, the Business-Higher Education
Forum and the American Institute of Aeronautics and Astronautics, as well as a
Vice Chairman of the Kennedy Center Corporate Fund.

MARCUS C. BENNETT, 64, is a director of various organizations.  He was Executive
Vice President and Chief Financial Officer of Lockheed Martin from 1995 to
January 1999 and is a director of Lockheed Martin.  He has been a COMSAT
director since August 1997.  He also is a director of Carpenter Technology
Corporation and Martin Marietta Materials, Inc. and a member of the board of
directors of the Private Sector Council and the Georgia Tech Advisory Board.
Mr. Bennett has been appointed to the COMSAT Board by Lockheed Martin pursuant
to the terms of the shareholders agreement.  Lockheed Martin owns approximately
49% of COMSAT's common stock.

                                       82
<PAGE>

LUCY WILSON BENSON, 72, has been a director of various business, educational and
nonprofit organizations since 1980.  She was Under Secretary of State for
Security Assistance, Science and Technology from 1977 to 1980.  She has been a
COMSAT director since September 1987.  She also is a director or trustee of
funds of The Dreyfus Corporation, and is Vice Chairperson of the Atlantic
Council of the U.S.  She also is a trustee of the Alfred P. Sloan Foundation,
Lafayette College and the Citizens Network for Foreign Affairs.

EDWIN I. COLODNY, 73, has been Chairman of the Board of COMSAT since April 1997
and a director since May 1992.  He was Chairman of US Airways Group, Inc. and of
its subsidiary, US Airways, Inc., a commercial airline company, from 1978 until
July 1992 and was a director of both corporations until May 1997.  He was Chief
Executive Officer of US Airways Group from 1983 to June 1991 and of its
subsidiary, US Airways, Inc., from 1975 to June 1991.  He has served as counsel
to the Washington, D.C. law firm of Paul, Hastings, Janofsky and Walker since
September 1991.

NEAL B. FREEMAN, 59, has been Chairman and Chief Executive Officer of The
Blackwell Corporation, a television production and distribution company, since
1981.  He was a Presidentially-appointed COMSAT director from November 1983 to
September 1988 and has been an elected director since May 1991.  He also is
Chairman of Foundation Management Institute and a director of GRC International,
Inc. and National Review, Inc.

CALEB B. HURTT, 68, is a director or trustee of various organizations.  He was
President of Martin Marietta Aerospace from 1982 to 1987 and then President and
Chief Operating Officer of Martin Marietta Corporation from 1987 through 1989.
He has been a COMSAT director since May 1996.  He also is a director of Lockheed
Martin and has served as Chairman of the Board of Governors of the Aerospace
Industries Association, as Chairman of the NASA Advisory Council, as Chairman of
the Federal Reserve Bank, Denver Branch, and as Vice Chairman of the Board of
Trustees of Stevens Institute of Technology.  Mr. Hurtt has been appointed to
the COMSAT Board by Lockheed Martin pursuant to the terms of the shareholders
agreement.  Lockheed Martin owns approximately 49% of COMSAT's common stock.

PETER W. LIKINS, 63, has been President of The University of Arizona since
October 1997.  He was President of Lehigh University from 1982 to September
1997, Provost of Columbia University from 1980 to 1982 and Professor and Dean of
the Columbia University School of Engineering and Applied Science from 1976 to
1980. He has been a COMSAT director since September 1987.  He also is a director
or trustee of Parker Hannifin, Inc., Consolidated Edison, Inc. and the
University Medical Center in Tucson, Arizona.

LARRY G. SCHAFRAN, 61, has been the Managing General Partner of L.G. Schafran &
Associates, a real estate investment and development firm, since 1984.  He

                                       83
<PAGE>

was Chairman of the Executive Committee of Dart Group Corporation from 1994 to
October 1997 and a director of Dart from 1993 to October 1997. He has been a
COMSAT director since August 1997. He also is a director of PubliCARD, Inc.,
Tarragon Realty Investors, Inc., Discovery Zone, Inc., Kasper A.S.L., Ltd.,
Banyon Strategic Realty Trust and Chairman of the Board of Directors of Delta-
Omega Technologies, Inc.

ROBERT G. SCHWARTZ, 71, is a director or trustee of various business
organizations.  He was Chairman of the Board, President and Chief Executive
Officer of Metropolitan Life Insurance Co. (MetLife) from September 1989 to
March 1993 and remains a director of MetLife.  He was Chairman of the Board of
MetLife from February 1983 to September 1989.  He has been a COMSAT director
since May 1986. He also is a trustee of Consolidated Edison Company of New York,
Inc. and a director of Lowe's Companies, Inc., Potlatch Corporation and the
Horatio Alger Association for Distinguished Americans.

JOHN V. SPONYOE, 61, is the Chief Executive Officer of Lockheed Martin Global
Telecommunications, a wholly owned subsidiary of Lockheed Martin Corporation
that was formed in August 1998.  He was President of Lockheed Martin's
Electronics Platform Integration (EPI) Group from April 1997 to August 1998 and
was elected a corporate vice president by the Lockheed Martin board of directors
in January 1997.  Mr. Sponyoe joined Lockheed Martin in April 1996 when Lockheed
Martin acquired Loral Federal Systems Owego, of which he was President.  Mr.
Sponyoe joined Loral Corporation in March 1994 when Loral Corporation acquired
IBM Corporation's Federal Systems Division (FSD) Owego facility, of which he was
Vice President and General Manager.  Mr. Sponyoe has been appointed to the
COMSAT Board by Lockheed Martin pursuant to the terms of the shareholders
agreement.  Lockheed Martin owns approximately 49% of COMSAT's common stock.

KATHRYN C. TURNER, 52, is the Chairperson and Chief Executive Officer of
Standard Technology, Inc., a high-technology, engineering and systems
integration firm.  She previously has been appointed by the President to serve
on the President's Export Council, the Eximbank Advisory Committee, and the
Commission on the Future of Worker-Management Relations and by the Secretary of
Defense to the Defense Policy Advisory Committee on Trade.  She has been a
COMSAT director since August 1997.  She also is a director of Phillips Petroleum
Company and Carpenter Technology Corporation.

GUY P. WYSER-PRATTE, 59, is President of Wyser-Pratte & Co., Inc. and Wyser-
Pratte Management Co., Inc.  He has been a COMSAT director since August 1997.
He also is a director of the International Rescue Committee, a non-governmental
international refugee organization, a member of the Council on Foreign Relations
and a trustee of the U.S. Marine Corps University Foundation.

                                       84
<PAGE>

                      EXECUTIVE OFFICERS OF THE REGISTRANT

-----------------------------------------------------------------------------
Name                                          Title                      Age*
-----------------------------------------------------------------------------
Betty C. Alewine          President and Chief Executive Officer           51
Edward E. Berger          Treasurer                                       42
Allen E. Flower           Vice President and Chief Financial Officer      56
Alan G. Korobov           Controller                                      51
John H. Mattingly         President, COMSAT Satellite Services            49
Benjamin A. Pontano       President, COMSAT Laboratories                  56
James J. Welch            President and General Manager, COMSAT           55
                          International
Warren Y. Zeger           Vice President, General Counsel and Secretary   52
-----------------------------------------------------------------------------
*As of March 1, 2000.

     Normally, the officers are elected annually by the Board of Directors at
its first meeting following the Annual Meeting of Shareholders to serve until
their successors are elected and qualified.

     There is no family relationship between any director or executive officer
and any other executive officer or director.  There is no arrangement or
understanding between any director or executive officer and any other person
pursuant to which he or she was selected as a director or executive officer.

     The following is a brief account of each executive officer's experience for
the past five years:

     Mrs. Alewine has been President and Chief Executive Officer since July
1996.  She was President, COMSAT International Communications from January 1995
to July 1996, and was President, CWS, from May 1991 to January 1995.  She is
also a member of the Board of Directors of the Corporation.

     Mr. Berger has been Treasurer since September 1998.  He previously worked
for Sprint Corporation in various financial capacities, where in his last
position he was responsible for all of Sprint's international treasury
activities.

     Mr. Flower has been Vice President and Chief Financial Officer since
November 1995.  From November 1995 to September 1996, he was also Acting
Treasurer.  He was Controller and Acting Chief Financial Officer from April 1995

                                       85
<PAGE>

through November 1995 and Controller from June 1992 to May 1995.  He also is a
director of Calian Technology Ltd.

     Mr. Korobov has been Controller since November 1995.  He was Vice
President, Finance for COMSAT Mobile Communications from January 1993 to
September 1995.

     Mr. Mattingly has been President, COMSAT Satellite Services since September
1997.  He was President, COMSAT World Systems from May 1997 to September 1997
and Vice President and General Manager, COMSAT World Systems from March 1995 to
May 1997.  He previously served as Vice President, Europe, COMSAT International
Ventures.  Before joining COMSAT in November 1994, he was Senior Vice President
and General Manager of OrionNet, Inc.

     Dr. Pontano has been President, COMSAT Laboratories since March 1997,
having served as Acting President, COMSAT Laboratories from August 1996.  He was
Vice President, Network Technology Division of COMSAT Laboratories from February
1995 to August 1996.  He joined COMSAT Laboratories in 1984 and has held various
management positions during that period.

     Mr. Welch has been President and General Manager, COMSAT International
since November 1998.  He previously worked for Global One, a joint venture of
Sprint, France Telecom and Deutsche Telekom, where in his last position he was
Vice President and Area Manager for Russia, India, Middle East and Africa.

     Mr. Zeger has been Vice President, General Counsel and Secretary since
August 1994.  He was Vice President and General Counsel from March 1992 to
August 1994.

Section 16(a) Beneficial Ownership Reporting Compliance

     The Form 3 for Mr. John V. Sponyoe, a director of COMSAT, was filed
approximately one month after he became a director.

                                       86
<PAGE>

Item 11:  Executive Compensation

                             DIRECTORS COMPENSATION

Generally

     Directors, other than the Chairman of the Board and the President and Chief
Executive Officer, currently receive an annual retainer of 1,000 shares of
COMSAT's common stock payable at the first meeting of the Board of Directors
after the annual meeting of shareholders.  Those directors also receive a fee of
$1,000 per meeting for attending meetings of the Board of Directors, meetings of
committees of the Board of Directors or meetings held pursuant to a special
assignment.  For service as chair of a committee of the Board of Directors, a
director receives an annual retainer of $3,000 paid in quarterly installments.
The President and Chief Executive Officer does not receive separate compensation
for service as a director.  Executive compensation is described in the section
entitled "Executive Compensation."

     Under the Non-Employee Directors Stock Plan, a non-employee director may
elect to defer receipt of the annual stock retainer and instead receive phantom
stock units.  Phantom stock units are held in an account for each director
pending retirement or termination of service on the Board of Directors.  Upon
payment of a dividend on COMSAT common stock, an equivalent dollar amount is
converted to phantom stock units, based on the fair market value of the stock on
the dividend payment date, and credited to the director's account.  The phantom
stock units increase or decrease in value based on an equivalent number of
shares of COMSAT common stock.  Upon retirement or termination of service, or in
the event of a change in control, a director receives payment in shares of
COMSAT common stock equal to the number of phantom stock units credited to the
director's phantom stock unit account.  See "Non-Employee Directors Stock Plan."

Chairman of the Board

     The Chairman of the Board receives annual cash compensation for service as
Chairman.  Prior to August 1999, Mr. Colodny received $215,000 per year.
Effective August 1, 1999, this amount was increased to $245,000.  The Chairman
may elect to receive all or a portion of this annual cash compensation in the
form of COMSAT common stock or stock options, on the following terms:

 . the shares or stock options are granted on the date of the annual meeting of
  shareholders;

 . the number of shares of stock granted is determined by dividing the amount
  which the Chairman elects to receive in shares by the fair market value of the
  stock on the date of the grant;

                                       87
<PAGE>

 . the number of stock options granted is determined by multiplying the amount
  which the Chairman elects to receive in options by three and then dividing by
  the fair market value of the stock on the date of grant;

 . the exercise price per share of options granted pursuant to the Chairman's
  election to receive options is the fair market value of a share of stock on
  the date of grant; and

 . each option expires 10 years from the date of grant and is exercisable for
  half of the shares covered by the option six months after the date of grant
  and for the remaining half of the shares one year after this date.

          For 1999, Mr. Colodny elected to receive $100,000 of the annual cash
compensation payable to him as Chairman in stock.  Pursuant to his election, he
was granted 2,756 shares of common stock determined in the manner described
above.

Directors and Executives Deferred Compensation Plan

          Under the Directors and Executives Deferred Compensation Plan, a non-
employee director may elect to defer payment of all or part of the cash retainer
and fees which the director is entitled to receive.  Amounts deferred are
credited with interest and are paid out after the director retires from the
Board of Directors.  The payment may take the form of a lump sum or up to 15
annual installments beginning not later than age 73.  If the director dies, the
accumulated deferrals are paid to the director's beneficiary.

For 1999:

 . the interest crediting rate was prime plus 1% for amounts deferred after 1996,
  12.75% for amounts deferred from February 1994 to December 1996 and 12.86% for
  amounts deferred prior to that period under the plan; and

 . the aggregate amount of interest accrued in respect of amounts deferred by
  participating directors (11 persons) was $453,835.

          In 1991, each director at that time serving on the Board of Directors
and participating in the plan was given an election to receive his account
balance as of March 31, 1991, together with interest accumulated on such balance
to a date in 2000, in a lump sum in 2000 to the extent that these amounts were
not previously distributed.  This payment is made only if, in 2000, such
director is an active director or a retiree receiving installment payments.  If
a director who has made such an election dies, the payment will be made to the
beneficiary of this director if this beneficiary is then receiving the
installment payments.  The lump sum payment will be offset against the amounts
otherwise payable to the director or beneficiary under the plan.

                                       88
<PAGE>

          In 1992, the plan was amended to provide for an additional lump sum
payment election for any additional amounts deferred under the plan from April
1, 1991 through March 31, 1992, together with interest accumulated on such
amounts to a date in 2001, with payment of the lump sum to be made in 2001.

          In September 1998, the plan was amended to provide that if the plan is
terminated, each participant will be paid the full amount of his account in
accordance with the terms of the plan and the participant's elections.

Split Dollar Life Insurance Plan for Directors

          Under the Split Dollar Life Insurance Plan for Directors, COMSAT
provides death benefits through split dollar life insurance policies to non-
employee directors as follows:

 . $50,000 for each year or partial year of his or her service on the Board of
  Directors until the benefit reaches $200,000;

 . payments increased by 5.5% for each additional year of service on the Board of
  Directors to age 72 (this increased coverage does not apply to Presidentially-
  appointed directors); and

 . coverage continues after retirement from the Board of Directors.

  For 1999, the aggregate value of split dollar life insurance premiums paid for
the benefit of all covered directors was $101,519.

Non-Employee Directors Stock Plan

          Under the Non-Employee Directors Stock Plan, in April of each year
COMSAT grants to each non-employee director an option to purchase shares of
common stock.  These grants are only given to those non-employee directors who
were also serving on the date of the annual meeting of shareholders for the
prior year.  Options have specific terms, as follows:

 . for options granted before 1990, each option is for 2,480 shares, the exercise
  price per share is the fair market value of a share of common stock on the
  date of grant, and the option expires 10 years from the date of grant;

 . for options granted from 1990 to 1992, each option is for 2,480 shares, the
  exercise price per share is 50% of the fair market value on the date of grant,
  and the option expires 15 years from the date of grant;

                                       89
<PAGE>

 . for options granted after 1992, each option is for 4,961 shares, the exercise
  price per share is the fair market value of a share of common stock on the
  date of grant, and the option expires 15 years from the date of grant;

 . all options granted before 1998 under the plan are currently exercisable; and

 . for options granted after 1995, each option becomes exercisable for 2,481
  shares one year after the date of grant and for the remaining 2,480 shares two
  years after the date of grant.

  All data related to shares of common stock, options to purchase shares of
common stock and share prices prior to June 27, 1997 have been adjusted to
reflect:

(1) the two-for-one split in COMSAT's common stock effective June 1, 1993, and

(2) the spin-off of Ascent Entertainment Group, Inc. to COMSAT's shareholders on
June 27, 1997.

          Pursuant to the Ascent spin-off, all outstanding options under the
plan on June 27, 1997 were adjusted by multiplying the number of options held by
an adjustment ratio of 1.2402, and the exercise price for such options was
adjusted by dividing the exercise price by the same ratio.

            Options become fully exercisable and continue in force for the
duration of their terms in the following situations:

 . termination of service on the Board of Directors by reason of retirement at
  age 72;

 . expiration of a term as a Presidentially-appointed director;

 . failure to stand for election with the Board of Directors' consent; or

 . resignation with the Board of Directors' consent.

          Options that have not terminated become fully exercisable and continue
in force for one year after the date of death of a director.  Options terminate
immediately if the director's service terminates under any other circumstance.

          Options also become fully exercisable and continue in force for the
duration of their terms in the event of certain changes in control.  A change in
control includes:

 . the acquisition by any person, other than COMSAT or an employee benefit plan
  sponsored by COMSAT, of beneficial ownership of 50% or more of the outstanding
  voting securities of COMSAT;

                                       90
<PAGE>

 . any change in the composition of the Board of Directors such that the elected
  directors as of May 17, 1996, referred to as the incumbent directors, cease to
  constitute a majority of the Board of Directors, provided that any individual
  whose nomination or election is approved by a vote of three-fourths of the
  then incumbent directors will be treated as an incumbent director;

 . approval by the shareholders of a merger, share exchange, swap, consolidation,
  recapitalization or other business combination which, if consummated, would
  result in COMSAT shareholders holding less than 60% of the combined voting
  power of COMSAT, the surviving entity or its parent, as applicable;

 . approval by the shareholders of the liquidation or dissolution of COMSAT, or
  sale by COMSAT of all or substantially all of COMSAT's assets, other than to
  an entity 80% of the combined voting power of which would be beneficially
  owned by COMSAT's then existing shareholders; or

 . any event which would have to be reported as a change of control under the
  regulations governing the solicitation of proxies by the SEC.

          In September 1998, the plan was amended to provide that only the
closing of the merger with Lockheed Martin, and not any of the other
transactions contemplated by the merger agreement, would constitute a change in
control for purposes of this plan.

          In 1999, options for a total of 64,493 shares of common stock were
granted to non-employee directors at a purchase price per share of $30.8750,
which was the fair market value of the common stock on the date of grant.  In
1999, Mrs. Benson and Mr. Schwartz each exercised 2,480 options granted
previously under the plan, and realized net values, which is the market value on
exercise date less exercise price, of $52,312 and $48,049, respectively.

Consulting Arrangements

          On August 26, 1997, COMSAT entered into agreements with Arthur
Hauspurg and Howard M. Love, directors who retired at the 1997 Annual Meeting of
Shareholders, to retain their advisory services to the Chairman of the Board and
the President and Chief Executive Officer for a period of two years at a rate of
$25,000 per year.  These agreements expired as of August 1999.

          COMSAT entered into an agreement with Lawrence S. Eagleburger, a
director who retired effective October 14, 1999, to retain his advisory services
to the Chairman of the Board and the President and Chief Executive Officer for a
period of two years or until the closing of the Lockheed Martin merger,
whichever is earlier, at a rate of $25,000 per year.

                                       91
<PAGE>

                             EXECUTIVE COMPENSATION

          The following table shows the compensation for the three fiscal years
ended December 31, 1999 received by (i) the Chief Executive Officer; and (ii)
the other four most highly compensated executive officers of COMSAT who were
serving as such at year end 1999.  These five individuals are referred to as the
Named Executive Officers.  The table shows the amounts received or earned by
each Named Executive Officer for all three fiscal years, whether or not such
Named Executive Officer was an executive officer of COMSAT for each of those
three years.

                                       92
<PAGE>

                          Summary Compensation Table

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                Annual Compensation                |    Long-Term Compensation
-----------------------------------------------------------------------------------|----------------------------------------------
Name and Principal                Year     Salary     Bonus(1)     Other Annual    |  Restricted     Securities
Position                                                           Compensation(2) |     Stock       Underlying      All Other
                                                                                   |  Award(s)(3)   Options(#)(4)  Compensation(5)
------------------                ----    --------    --------     --------------- |  -----------   -------------  ---------------
<S>                              <C>      <C>         <C>              <C>         |  <C>             <C>            <C>
Betty C. Alewine,                 1999    $608,173    $455,863         $   750     |    $203,875        63,000        $ 25,301
President & Chief                 -------------------------------------------------|---------------------------------------------
Executive Officer                 1998     533,173     406,258             665     |     182,625        30,000          22,736
                                  -------------------------------------------------|---------------------------------------------
                                  1997     472,116     306,756         $ 8,370     |     498,749             0          22,135
                                                                                   |
-----------------------------------------------------------------------------------|---------------------------------------------
Allen E. Flower, Vice             1999     289,415     150,922             731     |     101,938        30,500          39,725
President and Chief               -------------------------------------------------|---------------------------------------------
Financial Officer                 1998     251,516     211,248             580     |     121,750        25,000          33,318
                                  -------------------------------------------------|---------------------------------------------
                                  1997     209,770      83,627           5,622     |     174,554        49,608          36,855
                                                                                   |
-----------------------------------------------------------------------------------|---------------------------------------------
John H. Mattingly,                1999     329,539     176,827               0     |      87,375        22,500           4,800
President, COMSAT                 -------------------------------------------------|---------------------------------------------
Satellite Services                1998     270,539     173,146               0     |      91,313        20,000           4,800
                                  -------------------------------------------------|---------------------------------------------
                                  1997     190,308      75,029               0     |      74,820        24,804           4,750
                                                                                   |
-----------------------------------------------------------------------------------|---------------------------------------------
James J. Welch,                   1999     239,770      90,603               0     |      72,813        12,000           4,800
President and General             -------------------------------------------------|---------------------------------------------
Manager, COMSAT                   1998      35,481      36,816               0     |      77,563        15,000             757
International                     -------------------------------------------------|---------------------------------------------
                                  1997           0           0               0     |           0             0               0
                                                                                   |
                                                                                   |
-----------------------------------------------------------------------------------|---------------------------------------------
Warren Y. Zeger,                  1999     329,346     133,686             667     |     101,938        30,500          78,911
Vice President,                   -------------------------------------------------|---------------------------------------------
General Counsel                   1998     286,836     220,997             521     |     121,750        25,000          27,419
and Secretary                     -------------------------------------------------|---------------------------------------------
                                  1997     229,808      94,348           5,466     |     174,554        49,608          26,938
                                                                                   |
                                                                                   |
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

------------------------------
1  Bonus for 1999 for each Named Executive Officer, as indicated below,
includes time-off buyback and unused credits under the Corporation's cafeteria
plan that were paid in cash to the Named Executive Officers.  The bonuses
reflected for Mr. Flower, Mr. Mattingly and Mr. Zeger for 1998 include special
performance-based spot bonuses in the amounts of $100,000; $50,000; and
$100,000, respectively.  The bonus reflected for Mr. Welch in 1998 includes a
signing bonus in the amount of $25,000.

        Name            Time-off         Unused
                        Buyback          Credits
        ----            --------         -------

     Mrs. Alewine             0              863
     Mr. Flower           4,032            1,890
     Mr. Mattingly        3,600            7,227
     Mr. Welch            4,500            1,103
     Mr. Zeger                0            1,686

                                       93
<PAGE>

-------------------------------------------------------------------------------

2  Other Annual Compensation shown for 1997, 1998 and 1999 does not include
perquisites and other personal benefits because the aggregate amount of such
compensation does not exceed the lesser of (i)  $50,000 or (ii) 10% of
individual combined salary and bonus for the Named Executive Officer in each
year.

3  Includes restricted stock awards (RSAs), restricted stock units (RSUs) and
phantom stock units (PSUs).  Dividends are paid on RSAs.  Dividend equivalents
are paid on RSUs and PSUs.  Any RSAs granted to the Named Executive Officers in
1997 were forfeited in 1999 based on the non-satisfaction of certain required
performance measures during 1997 and 1998.  The number and value of the
aggregate restricted stock holdings of each of the Named Executive Officers as
of December 31, 1999 are as follows:

              Name              Number of               Value as of
                                RSAs/RSUs/PSUs          12/31/99
        ------------------      -------------------     -------------------
        Mrs. Alewine                    23,666                   $461,487
        Mr. Flower                      12,957                    252,662
        Mr. Mattingly                    7,984                    155,688
        Mr. Welch                        4,500                     87,750
        Mr. Zeger                       13,453                    262,334

Awards granted prior to June 27, 1997 were adjusted to give effect to the Ascent
spin-off to COMSAT shareholders.  In lieu of receiving a distribution of Ascent
stock, all outstanding RSAs, RSUs and PSUs held on that date were adjusted by
multiplying the number of shares or units held by an adjustment ratio of 1.2402.

4  Options granted prior to June 27, 1997 were adjusted to give effect to the
Ascent spin-off to COMSAT shareholders.  All outstanding options held on that
date were adjusted by multiplying the number of options held by an adjustment
ratio of 1.2402.

5  All Other Compensation for 1999 includes the following elements:  (i)
contributions by the Corporation to the Corporation's 401(k) Plan on behalf of
the Named Executive Officers;  (ii)  above-market interest accrued for the Named
Executive Officers under the Corporation's Deferred Compensation Plan;  and
(iii)  life insurance premiums for the Named Executive Officers.  The life
insurance premiums shown for the Named Executive Officers represent split dollar
premiums which include (i)  the value of the premiums paid by the Corporation
with respect to the term life insurance portion of the policy for each Named
Executive Officer, determined under the P.S. 58 table published by the Internal
Revenue Service, and (ii)  the value of the benefit to each Named Executive
Officer of the remainder of the premiums paid by the Corporation, determined by
calculating the present value of the cumulative interest payments that would be
made based on the assumption that the premiums were loaned to each Named
Executive Officer at an interest rate of 7.5% until the Named Executive Officer
reaches the normal retirement age of 65, at which time the policy splits and the
premiums are refunded to the Corporation.

        Name            401(k) Plan         Above-Market         Life Insurance
                        Contributions       Interest             Premiums
   ---------------      -------------       ------------         --------------
   Mrs. Alewine            $4,800               $11,465               $9,036
   Mr. Flower               4,800                14,991               19,934
   Mr. Mattingly            4,800                     0                    0
   Mr. Welch                4,800                     0                    0
   Mr. Zeger                4,800                10,285               63,826

                                       94
<PAGE>

Option Grants

            The following table sets forth information on options granted to the
Named Executive Officers in 1999.

                       Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>

                                                                           Individual Grants
------------------------------------------------------------------------------------------------------------------------------------
Name                         Number of Securities    % of Total Options      Exercise Price    Expiration Date   Grant Date Present
                              Underlying Options    Granted to Employees         ($/Sh)                                Value(3)
                                Granted (#)(1)        in Fiscal Year(2)
-------------                --------------------   --------------------    ---------------   ----------------   -------------------
<S>                          <C>                    <C>                    <C>                 <C>              <C>
Mrs. Alewine                           63,000                  8.42%            $29.1250           02/19/09            $1,013,040
Mr. Flower                             30,500                  4.08%            $29.1250           02/19/09               490,440
Mr. Mattingly                          22,500                  3.01%            $29.1250           02/19/09               361,800
Mr. Welch                              12,000                  1.60%            $29.1250           02/19/09               192,960
Mr. Zeger                              30,500                  4.08%            $29.1250           02/19/09               490,440
</TABLE>

-------------------------------
1  The options shown were granted on February 19, 1999 to acquire the
Corporation's Common Stock.  All options granted in 1999 vest as follows:  25%
on the first anniversary of the date of grant;  another 25% on the second
anniversary of the date of grant;  and the remaining 50% on the third
anniversary of the date of grant.

2  The total number of COMSAT options granted to key employees in 1999 was
748,378.

3  The Corporation used the Black-Scholes option pricing model to determine
grant date present values using the following assumptions: a dividend yield of
0.61%; stock price volatility of 0.5613; a six-year option term; a risk-free
rate of return of 5.18%;  and the vesting schedule described in footnote 1
above.  The use of this model is in accordance with SEC rules;  however, the
actual value of an option realized will be measured by the difference between
the stock price and the exercise price on the date the option is exercised.

                                       95
<PAGE>

Option Exercises and Fiscal Year-End Values

The following table sets forth information on (1) options exercised by the Named
Executive Officers in 1999, and (2) the number and value of their unexercised
options as of December 31, 1999.

         Aggregated Option Exercises In 1999 And 12/31/99 Option Values
<TABLE>
<CAPTION>
                                                              Number of Securities Underlying       Value of Unexercised In-The
                                                              Unexercised Options at 12/31/99(1)    Money Options at 12/31/99
                                                              --------------------------------------------------------------------
Name                             Shares       Value Realized  Exercisable (#)  Unexercisable (#)    Exercisable      Unexercisable
                               Underlying
                                 Options
                              Exercised (#)
---------------------         -------------   --------------  ---------------  ----------------    ------------      -------------
<S>                          <C>              <C>             <C>              <C>                <C>              <C>
Mrs. Alewine                      132,706      $2,981,142         234,741             85,500          $423,840                 $0
Mr. Flower                              0              $0          99,266             74,054          $393,470                 $0
Mr. Mattingly                           0              $0          33,524             49,902          $ 76,451                 $0
Mr. Welch                               0              $0           3,750             23,250          $      0                 $0
Mr. Zeger                               0              $0         149,052             74,054          $259,830                 $0
</TABLE>
---------------------
1  Options granted prior to June 27, 1997 were adjusted to give effect to the
Ascent spin-off to COMSAT shareholders.  All outstanding options held on that
date were adjusted by multiplying the number of options held by an adjustment
ratio of 1.2402.

Pension Plans

          The following table shows the estimated annual benefits payable upon
retirement under the Corporation's Retirement Plan to persons in the salary and
years-of-service classifications specified.  The Internal Revenue Code limits
the annual benefits payable under the Retirement Plan.  Under this limitation,
the maximum annual benefit for 1999 is $130,000.

Estimated Annual Benefits - COMSAT Corporation Retirement Plan

-------------------------------------------------------------------------------
                                              Years of Service
-------------------------------------------------------------------------------
 Average Annual Salary ($)        15        20        25        30        35
-------------------------
100,000                        $24,768  $ 33,633  $ 42,738  $ 51,362  $ 60,227
150,000                         38,543    52,408    66,272    80,137    94,002
200,000                         48,552    67,417    86,282   105,147   124,011
250,000                         55,340    79,205   103,070   126,934   130,000
300,000                         60,340    89,205   118,070   130,000   130,000
350,000                         65,340    99,205   130,000   130,000   130,000
400,000                         70,340   109,205   130,000   130,000   130,000
450,000                         75,340   119,205   130,000   130,000   130,000
500,000                         80,340   129,205   130,000   130,000   130,000
550,000                         85,340   130,000   130,000   130,000   130,000
600,000                         90,340   130,000   130,000   130,000   130,000
650,000                         85,034   130,000   130,000   130,000   130,000
700,000                         89,034   130,000   130,000   130,000   130,000


                                       96
<PAGE>

          The compensation covered by the Retirement Plan includes only base
salary.  Benefits are determined on a straight life annuity basis under a
formula based on length of service and average annual base salary for the
highest five consecutive years during the final 10 years of employment.  Prior
to 1989, benefits were offset by a portion of each participant's estimated
Social Security benefits.  Beginning in 1989, each participant accrues a benefit
at a specified percentage of salary up to the Social Security wage base, and at
a higher percentage of salary above the Social Security wage base.  The years of
credited service for the Named Executive Officers as of December 31, 1999 are as
follows:

        Mrs. Alewine     13
        Mr. Flower       30
        Mr. Mattingly     5
        Mr. Welch         1
        Mr. Zeger        24

Insurance and Retirement Plan for Executives

          COMSAT also maintains the Insurance and Retirement Plan for
Executives, which covers those executive officers and other key employees who
are designated by the Board of Directors to participate.  The plan provides an
annuity for life equal to 60% (70% for the Chief Executive Officer) of the
participant's average annual compensation (salary and incentive compensation)
during the 48 consecutive months of highest compensation (or during all
consecutive months of employment if the participant has been employed less than
48 months), offset by pension benefits payable under the Retirement Plan, the
qualified retirement plans of former employers, Social Security, and government
and military pensions.

          Payment begins upon the participant's normal retirement at age 65.
However, a participant in the plan may retire as early as age 55.  If a
participant retires before age 62, the Board must consent to such early
retirement.  A participant who retires early will receive an annuity reduced by
3% for each year that payment begins before age 62. For employees who became
participants in the plan before January 1, 1993, benefits vest ratably over the
first five years of the participant's service.  For employees who become
participants in the plan on or after January 1, 1993, benefits are 50% vested
after five years of service and then vest an additional 10% per year over the
following five years of service, provided that the sum of the participant's age
and years of service equals 60.  See "Agreements with Current Executive
Officers."

                                       97
<PAGE>

          The annual benefits payable upon retirement at age 65 based upon the
48 consecutive months of highest compensation as of December 31, 1999 for each
of the Named Executive Officers under the plan are:

        Mrs. Alewine     $519,164
        Mr. Flower       $ 98,586
        Mr. Mattingly         N/A
        Mr. Welch             N/A
        Mr. Zeger        $135,662

          Mrs. Alewine, Mr. Flower and Mr. Zeger are each 100% vested in the
plan.  Mr. Mattingly and Mr. Welch do not participate in the plan.

Change in Control Severance Plan

          On September 18, 1998, COMSAT adopted the Amended and Restated Change
in Control Severance Plan.  The plan amends and restates the Change in Control
Severance Plan adopted by COMSAT on June 20, 1997.  The plan generally provides
severance payments and benefits to specified key employees, including certain
executive officers, of COMSAT who incur a termination of employment under
certain circumstances following a change in control of COMSAT.  The plan covers
Mr. Mattingly and Mr. Welch but does not cover Mrs. Alewine, Mr. Flower or Mr.
Zeger, who each have severance arrangements under their employment agreements.
Participants under the plan are classified as either Group I Participants, Group
II Participants or Group III Participants.  For purposes of the plan, the
definition of change in control is substantively identical to the definition of
such term described under the caption "Agreements with Current Executive
Officers."

          Under the plan, if a change in control of COMSAT occurs and a
participant's employment is terminated during the period beginning on the date
of the change in control and ending on the date which is eighteen months after
the date of such change in control by COMSAT other than for cause or disability,
or by the participant for good reason, then, instead of any other severance
payments or severance benefits payable to the participant by COMSAT, the
participant will be entitled to receive the following during the benefits
continuation period, as defined below:

 . base salary;

 . targeted annual bonus under COMSAT's Annual Incentive Plan; and

 . the same group health and welfare benefits to which the participant would have
  been entitled had he or she remained continuously employed by COMSAT during
  the benefits continuation period.

                                       98
<PAGE>

          For purposes of the plan, benefits continuation period means with
respect to each Group I, Group II and Group III Participant, respectively, the
24 month, 18 month and 15 month periods immediately following the participant's
date of termination of employment. Mr. Mattingly and Mr. Welch are Group I
Participants. If, however, the amount of the payment that the participant is
entitled to receive upon a termination of employment under the Retention Bonus
Plan, as described below, is greater than the aggregate amount that the
participant is entitled to receive under the amended severance plan, exclusive
of health and welfare benefits, then the participant will forfeit all rights to
receive these payments under the amended severance plan.

          The amended severance plan also provides that, in the event of a
participant's termination of employment under the circumstances described above,
such participant would be entitled to receive a gross-up payment if any payment
or benefit to such participant would constitute an excess parachute payment
under Section 280G of the Internal Revenue Code.

Retention Bonus Plan

          On September 18, 1998, COMSAT adopted the Retention Bonus Plan.  The
Retention Bonus Plan generally provides retention bonuses to key employees who
remain employed by COMSAT, or whose employment is terminated under specific
circumstances, through specified dates following the signing of the merger
agreement.  The Retention Bonus Plan covers approximately 108 participants, who
are classified as either Group I Participants or Group II Participants.  The
plan covers Mr. Mattingly, who is a Group I Participant, but does not cover Mrs.
Alewine, Mr. Flower or Mr. Zeger, who each have similar bonus arrangements under
their employment agreements, or Mr. Welch.

          Under the Retention Bonus Plan, each Group I Participant will be
entitled to receive the following retention bonuses, subject to such person's
continued employment through a specified date:

 .  a bonus on the earliest of:

 .  (a) the completion of the merger,

 .  (b) the termination date of the merger pursuant to the merger agreement, or

 .  (c) September 18, 2000,

equal to 50% of the sum of the participant's highest base salary plus his or
her highest targeted annual bonus under COMSAT's Annual Incentive Plan; and

                                       99
<PAGE>

 .  a bonus on the 18-month anniversary of the closing of the merger equal to
   100% of the sum of the participant's highest base salary plus his or her
   highest targeted annual bonus under COMSAT's Annual Incentive Plan.

          If, on or before the date on which a bonus would be paid, a Group I
Participant's employment is terminated without cause or by reason of his or her
death or disability, or, if a Group I Participant elects to terminate his or her
employment for good reason, such Group I Participant will be entitled to receive
a payment upon termination, instead of any bonuses which have not yet become
payable to the participant under the Retention Bonus Plan, in an amount equal to
the bonus to which he or she would have been entitled had he or she remained
employed by COMSAT through the date on which the next bonus will be paid.  If,
however, the aggregate amount of any severance payments to which the participant
is entitled under any severance plan of COMSAT is greater than or equal to the
amount of the bonus payable upon such a termination under the Retention Bonus
Plan, then the participant will forfeit all rights to receive such payment and
any other bonus payments that have not yet become payable to the participant
under the Retention Bonus Plan.  In the event that the participant receives a
payment upon termination of employment under the Retention Bonus Plan, such
participant will not be entitled to any severance payment under any severance
plan of COMSAT to the extent that such severance payment is based on the
participant's salary and/or bonus.

          Group II Participants are entitled to receive bonuses under the
Retention Bonus Plan at the same times and, in general, on the same terms as the
Group I Participants, except that the bonuses are based on a lower percentage of
their base salary and targeted annual bonus.

Agreements With Current Executive Officers

          COMSAT has entered into an employment agreement with Mrs. Alewine
dated as of July 19, 1996, and amended as of May 16, 1997 and July 18, 1997, and
has entered into employment agreements with Mr. Flower and Mr. Zeger dated as of
April 18, 1997, and amended as of July 18, 1997.  On September 18, 1998, COMSAT
amended the employment agreements in connection with the merger.

The agreements include the following terms:

 . for Mrs. Alewine, successive three-year terms from each successive day after
  July 19, 1996 until July 19, 2003; for Mr. Flower, a three-year term; and for
  Mr. Zeger, a five-year term.  The amendments extended the term of Mr. Flower's
  employment agreement for two years until April 17, 2002;

 . for Mrs. Alewine, base salary of $450,000 for the first year, with an increase
  to $500,000 in the second year; for Mr. Flower, base salary of $210,000 per
  year; for

                                      100
<PAGE>

  Mr. Zeger, base salary of $230,000 per year; for each executive, further
  increases in base salary are subject to the discretion of COMSAT's Board of
  Directors;

 . eligibility for an annual bonus based on performance measures determined by
  the Board of Directors' Compensation Committee with a target bonus equal to
  70% of Mrs. Alewine's base salary, 50% of Mr. Flower's base salary, and 50% of
  Mr. Zeger's base salary;

 . for termination without cause, or if the executive elects to terminate his or
  her employment for good reason, the executive will be entitled to receive the
  following for a period of time as specified below:

(1) his or her then current base salary;

(2) an annual bonus equal to 70% of Mrs. Alewine's then current base salary, 50%
of Mr. Flower's then current base salary, and 50% of Mr. Zeger's then current
base salary; and

(3) all other benefits provided for pursuant to the agreement, which will be
deemed fully and immediately vested if subject to vesting.

          Mrs. Alewine will be entitled to receive these amounts for three years
from her termination date or until July 19, 2003, whichever is earlier, but in
no case for less than one year following termination.  Mr. Flower will be
entitled to receive these amounts until the later of one year from his
termination date or April 17, 2002.  Mr. Zeger will be entitled to receive these
amounts until April 17, 2002.

 . if Mrs. Alewine's employment is not renewed after July 19, 2003, or is
  terminated before then either by Mrs. Alewine for good reason or by COMSAT
  without cause, Mrs. Alewine will be entitled to begin receiving retirement
  benefits at age 55 under the Insurance and Retirement Plan for Executives at
  the actuarially reduced rate for early retirement, subject to the Board of
  Directors' discretion to waive such reduction;

 . if Mr. Flower's employment is not renewed after April 17, 2002, Mr. Flower
  will be entitled to receive:

(1) the benefits described above for one year thereafter, and

(2) retirement benefits under the Insurance and Retirement Plan for Executives
beginning on May 1, 2002 at the actuarially reduced rate for early retirement,
subject to the Board of Directors' discretion to waive such reduction;

 . if Mr. Zeger's employment is not renewed after April 17, 2002, or is
  terminated before then either by Mr. Zeger for good reason or by COMSAT
  without cause,

                                      101
<PAGE>

  Mr. Zeger will be entitled to begin receiving retirement benefits at age 55
  under the Insurance and Retirement Plan for Executives at the actuarially
  reduced rate for early retirement, subject to the Board of Directors'
  discretion to waive such reduction; and

 . in the event that either Mr. Flower or Mr. Zeger dies after his employment
  terminates but before his retirement benefits begin, under the Insurance and
  Retirement Plan for Executives, his spouse will receive the death benefits
  provided in the plan for participants who die while employed by COMSAT.

          Pursuant to her employment agreement, Mrs. Alewine was granted, on
October 17, 1996, an option to purchase 186,030 shares of COMSAT's common stock
at a price equal to the market value of the stock on the grant date, which vests
25% after one year, another 25% after the second year and the remaining 50%
after the third year; on October 17, 1996, 6,201 restricted stock units which
vest after three years; and on February 20, 1997, 24,804 restricted stock awards
which are subject to the same terms as restricted stock awards made to other
executives of COMSAT on that date.

          Pursuant to the amendments, the employment agreements were amended to
provide that, upon the occurrence of a change in control, the term of each
employment agreement will automatically end on the third anniversary of the date
of such change in control.

          As defined in the amendments, a change in control is deemed to have
occurred upon the happening of any one of the following events:

 . the acquisition by any person of beneficial ownership of 50% or more of the
  combined voting power of the outstanding voting securities of COMSAT;

 . any change in the composition of the Board of Directors of COMSAT such that
  the incumbent directors elected as of May 17, 1996 cease to constitute a
  majority of the Board of Directors; however, any individual whose nomination
  or election is approved by a vote of three-fourths of the then incumbent
  directors will be treated as an incumbent director;

 . approval by the shareholders of a merger, share exchange, swap, consolidation,
  recapitalization or other business combination which, if consummated, would
  result in COMSAT's shareholders holding less than 60% of the combined voting
  power of COMSAT, the surviving entity or its parent;

 . approval by the shareholders of the liquidation or dissolution of COMSAT, or
  sale by COMSAT of all or substantially all of COMSAT's assets, other than to
  an entity 80% of the combined voting power of which would be beneficially
  owned by COMSAT's then existing shareholders; or

                                      102
<PAGE>

 . any event which would have to be reported as a change of control under the
  regulations governing the solicitation of proxies by the SEC.

          However, if, prior to the occurrence of any of the above events, the
Board of Directors adopts a resolution specifically providing that the event
will not be deemed to constitute a change in control for purposes of the
employment agreements, then such event will not constitute a change in control.

          The amendments provide that, with respect to the merger, a change in
control of COMSAT for purposes of the employment agreements will be triggered by
the closing of the merger, but not by the signing of the merger agreement, the
approval by the Board of Directors or COMSAT's shareholders of the merger or the
merger agreement, the commencement or the closing of the tender offer, or the
acquisition by Lockheed Martin or Regulus of COMSAT Government Systems.

          The amendments also amended the employment agreements to provide that
each of the executives will be entitled to receive the following retention
bonuses, subject to his or her continued employment through the applicable dates
for such bonuses:

 . a bonus on the earliest of:

(a) the completion of the merger,

(b) the termination date of the merger pursuant to the merger agreement, or

(c) September 18, 2000,

equal to 150% of the sum of the executive's highest base salary plus the
executive's highest targeted annual bonus, assuming all performance targets are
met to the maximum extent, under COMSAT's Annual Incentive Plan; and

 . a bonus on the eighteen month anniversary of the closing date of the merger in
  an amount equal to 100% of the sum of the executive's highest base salary plus
  the executive's highest targeted annual bonus, assuming all performance
  targets are met to the maximum extent, under COMSAT's Annual Incentive Plan.

          In the following situations, the executive will be entitled to
receive, instead of the retention bonuses described above, a payment in an
amount equal to the retention bonus to which the executive would have been
entitled had the executive remained employed by COMSAT through the applicable
date:

 . for termination without cause on or before the applicable date for such
  bonuses;

 . by reason of the executive's death or disability; or

                                      103
<PAGE>

 . if the executive elects to terminate his or her employment for good reason.

          If the executive and Lockheed Martin are unable to reach an agreement
regarding the terms and conditions of the executive's employment within 30 days
following the closing of the merger and the executive's employment is terminated
within such 30-day period, the executive will:

 . forfeit all rights to receive the bonus which otherwise would have been
  payable to the executive on the eighteen month anniversary of the closing date
  of the merger; or

 . forfeit all rights to the payment of a post-closing severance payment which
  would have been payable to the executive in the event of a termination of the
  executive's employment between the closing date of the merger and the eighteen
  month anniversary of the closing date of the merger.

          The amendments amended the employment agreements to provide that each
of the executives will be entitled to receive the severance benefits and
payments to which he or she was entitled under his or her employment agreement
prior to the amendments only in the event that the termination of his or her
employment which gives rise to such payments occurs prior to a change in control
of COMSAT.

          Pursuant to the amendments, each of the employment agreements was also
amended to provide that, if a change in control of COMSAT occurs and the
executive's employment is terminated during the period beginning on the date of
the change in control and ending on the last day of the executive's employment
term by COMSAT other than for cause or disability, or by the executive for good
reason, then, instead of any other severance payments or severance benefits
payable to the executive under the employment agreements, the executive will be
entitled to receive the following until the expiration of the executive's
employment term:

 . base salary;

 . targeted annual bonus under COMSAT's Annual Incentive Plan; and

 . continued group health and welfare plan benefits for the executive and the
  executive's dependents, subject to reduction under certain circumstances
  described in the amendments.

          The executives also will be entitled to receive benefits under
COMSAT's Insurance and Retirement Plan for Executives commencing as early as age
55 without any actuarial reduction for early commencement of benefits.

          In addition, the amendments modified the employment agreements to
provide that if a change in control of COMSAT occurs and

                                      104
<PAGE>

(a) if the executive and Lockheed Martin have negotiated in good faith but have
been unable to reach an agreement regarding the terms and conditions of the
executive's employment within 30 days following the closing of the merger and
the executive's employment is terminated within the 30-day period, or

(b) if the executive continues to be employed until the expiration of the
executive's employment term,

then the executive will be entitled to receive the benefits under the Insurance
and Retirement Plan for Executives noted above.

          Each of the executives also would be entitled to receive a gross-up
payment if any payment or benefit to the executive would constitute an excess
parachute payment under Section 280G of the Internal Revenue Code.

          The share amounts discussed in this section have been adjusted to give
effect to the Ascent spin-off to COMSAT shareholders on June 27, 1997 by
multiplying the number of shares or units held on that date by an adjustment
ratio of 1.2402.

                         CHANGE IN CONTROL ARRANGEMENTS

          Certain of COMSAT's benefit and compensation programs have provisions
that are intended to assure the continuity and stability of management and the
Board of Directors necessary to protect shareholders' interests, and to protect
the rights of the participants under those programs, in the event of a change in
control of COMSAT.  A change in control for this purpose is defined in the same
manner as described above under the caption "Directors Compensation--Non-
Employee Directors Stock Plan."  The following actions will take place upon the
occurrence of a change in control:

 . the vesting of all stock options, restricted stock awards, restricted stock
  units and phantom stock units will be accelerated under COMSAT's 1990 and 1995
  Key Employee Stock Plans, Non-Employee Directors Stock Plan and Annual
  Incentive Plan;

 . the deferred compensation accounts under COMSAT's Directors and Executives
  Deferred Compensation Plan, Annual Incentive Plan and Non-Employee Directors
  Stock Plan will become immediately payable;

 . participants in the Split Dollar Life Insurance Plans for Directors and for
  Key Employees will receive fully-paid individual policies;

 . directors will receive an immediate lump sum payment of their accrued benefits
  under the Directors Retirement Plan using present value assumptions; and

                                      105
<PAGE>

 . participants in COMSAT's Insurance and Retirement Plan for Executives will
  become vested in their accrued benefits under the plan and will receive an
  immediate lump sum payment using present value assumptions.

          The Board of Directors retains the authority under the change in
control provisions to determine that the provisions should not apply to a
particular transaction. In the event of such a determination, the vesting of
stock awards and the payment of various plan benefits would not be accelerated.
This feature is intended to afford the Board of Directors flexibility in
structuring transactions and to encourage negotiated transactions.

          Pursuant to such authority, the Board of Directors has adopted
resolutions determining that, for purposes of the Insurance and Retirement Plan
for Executives, the Deferred Compensation Plan, the Split Dollar Life Insurance
Plan for Directors, the Split Dollar Life Insurance Plan for Key Employees and
the Annual Incentive Plan, the merger and the transactions contemplated by the
merger agreement will not constitute a change in control of COMSAT.  For
purposes of the 1990 Key Employee Stock Plan, the 1995 Key Employee Stock Plan,
the Non-Employee Directors Stock Plan and the Amended and Restated Change in
Control Severance Plan, only the closing of the merger, and not any of the other
transactions contemplated by the merger agreement, will constitute a change in
control of COMSAT.


COMMITTEE ON COMPENSATION AND MANAGEMENT DEVELOPMENT REPORT ON EXECUTIVE
COMPENSATION

          Committee Responsibilities.  The Committee on Compensation and
Management Development, which is composed of independent outside directors, is
responsible for establishing and administering the Corporation's executive
compensation philosophy.  Set forth below is the Committee's report on the 1999
compensation of the executive officers of the Corporation, including Mrs.
Alewine, the Chief Executive Officer, and the other executive officers named in
the Summary Compensation Table (the Named Executive Officers).

          Statement of Philosophy.  The Corporation's executive compensation
philosophy is designed to attract, motivate and retain talented executives
critical to the long-term success of the Corporation. One of the objectives of
this philosophy is to align executive compensation more closely with the
interests of shareholders through performance incentives.

          Components of Compensation.  The main components of the Corporation's
executive compensation philosophy are annual compensation consisting of salary
plus bonuses awarded under the Corporation's Annual Incentive Plan, and long-
term compensation consisting of stock-based incentives.  The Committee reviews
and recommends to the Board the annual compensation of all executive officers,
and reviews and approves executive officers' long-term compensation.

                                      106
<PAGE>

          There are two groups of competitive companies that are used in the
executive compensation analysis.  The first group, consisting of the companies
that make up the Peer Group Index discussed under the caption "Performance
Graph," is used to compare executive compensation strategy and practices.  The
second group, consisting of companies in the telecommunications industry with
revenues comparable to the Corporation's, is used to benchmark competitive
compensation levels.

          Annual Compensation.  Mrs. Alewine has an employment agreement as
Chief Executive Officer dated July 19, 1996, which is summarized below under the
caption "Agreements with Executive Officers."  The agreement determines her base
salary for each of the first two years and provides that thereafter her base
salary is to be reviewed annually for increases to be approved at the discretion
of the Board.  In July 1999, the Committee recommended to the Board that Mrs.
Alewine's base salary be increased to $650,000 based on market data for a
comparable chief executive officer position and her performance in the last
year.  The Board approved the Committee's recommendation.  Mrs. Alewine's
employment agreement specifies an annual bonus target of 70% of her base salary.
In addition, the agreement provides for the Committee to determine the
performance measures and other factors used to determine her bonus in
consultation with Mrs. Alewine.  These factors included the Corporation's
financial results, Mrs. Alewine's success in meeting personal objectives for
1999 that she presented to the Committee and the Corporation's achievement of
strategic objectives.  These strategic objectives included the completion of the
Lockheed Martin tender offer, objectives stated in the 1999 Strategic Business
Plan and focus on profit increase, cost control and increased shareholder value.
The Committee considered all of these factors in arriving at a bonus
recommendation for Mrs. Alewine.  The Committee recommended, and the Board
approved, payment of a 1999 cash bonus award of $455,000 for Mrs. Alewine.

          Base salary ranges have been established for the other executive
officers based on the average of the market for comparable positions in the
revenue group of competitive companies.  Individual salaries within each range
are based on recommendations to the Committee by the Chief Executive Officer
taking into account such factors as total professional experience, performance,
and experience in the current assignment.  The bonus opportunities for other
executive officers for 1999 were based on a range of award percentages of base
salary for each position determined by the Committee.  A portion of each bonus
award was tied to corporate performance criteria based on the achievement of
financial measures as compared to planned performance, and individual
performance criteria based on the Committee's evaluation of each individual
executive officer's achievement of established performance goals for the year.
The Committee recommended a bonus award for each executive officer based on a
bonus range and the performance measures noted above.  The Board had final
approval authority for these awards.

          Long-Term Compensation.  Long-term compensation is an integral element
of the Corporation's executive compensation philosophy because the Committee
believes that stock ownership by senior management and stock-based performance-
compensation

                                      107
<PAGE>

arrangements may enhance shareholder value. The Corporation's long-term
compensation strategy includes a blend of stock compensation. For 1999, awards
by the Committee consisted of non-qualified stock options and restricted stock
awards (RSA's). These awards were consistent with ranges in the revenue group of
competitive companies approved by the Committee. The stock option ranges
position the Corporation at the median of the market for these companies while
the performance-based restricted stock awards allow for total long-term
compensation to reach at or above the 75th percentile for this market if the
business achieves prescribed performance standards over the long-term. At the
Committee's request, an independent executive compensation consultant conducted
a review of total compensation for Mrs. Alewine and the other Named Executive
Officers that included stock award recommendations. The Committee endorsed the
consultant's methodology for developing recommendations for 1999 stock grants
whereby base salary, bonus and long-term compensation (stock option and RSA's)
would be measured against market data on total compensation for comparable
positions.

          A portion of executive compensation is represented by stock options
granted at fair market value which the Committee believes provide a tie to
shareholder interests.  In 1999, Mrs. Alewine received a grant of 63,000 stock
options in accordance with the methodology approved by the Committee.

          Stock options were granted to the other Named Executive Officers in
February 1999 as reflected in the table above setting forth 1999 option grants.
These stock option awards were determined on the basis of two factors.  First,
the Committee established target award guidelines for each executive officer
based on a competitive analysis of total compensation for each executive
officer.  Second, the Committee approved the actual awards for each executive
officer based on these guidelines and performance recommendations made by Mrs.
Alewine based on her evaluation of each officer's performance for 1998.

          RSAs are restricted shares of COMSAT stock which are granted to
executive officers and selected key employees as a performance incentive and a
retention device based on the vesting schedule established by the Committee for
each grant.  The vesting of RSAs is subject to both the achievement of objective
performance-based criteria which have been approved by the Committee and a
length of service requirement.  The percent of the award earned is based on the
achievement of the performance objectives over the performance period
established by the Committee.  The RSA's earned then become subject to vesting
over an additional 1, 2 and 3 years at the rate of 20%, 40% and 40%,
respectively.  Mrs. Alewine received 7,000 RSA's in February 1999.  The other
Named Executive Officers also received RSA's in February 1999 as shown in the
Summary Compensation Table, the number of which in each case was consistent with
the guidelines approved by the Committee.

          The performance-based criteria applicable to RSA's are intended to
ensure the Federal tax deductibility under Section 162(m) of the Internal
Revenue Code of compensation paid to the Corporation's executive officers
pursuant to RSA's.  The

                                      108
<PAGE>

Corporation intends to preserve the tax deductibility under Section 162(m) of
all compensation paid to its executive officers.

Committee on Compensation and Management Development

Neal B. Freeman, Chairman
Caleb B. Hurtt
Peter S. Knight
Robert G. Schwartz
Kathryn C. Turner


PERFORMANCE GRAPH

          The following graph compares the cumulative total shareholder return
for the Corporation's Common Stock with the cumulative total return of the S&P
500 Stock Index and a Peer Group Index constructed by the Corporation for the
five fiscal years beginning on January 1, 1995 and ending on December 31, 1999.
The Peer Group consists of three long-distance telecommunications companies
(AT&T, MCI WorldCom and Sprint), and the following satellite industry companies
(the years for which the returns of such companies have been included in the
five-year period are noted in parentheses): American Mobile Satellite
Corporation (all years), Asia Satellite Telecom (1996-99), British Sky
Broadcasting Group (1995-99), Echostar Communications Corporation (1996-99),
Globalstar Telecommunications Ltd. (1996-99), Iridium World Communications
(1996-99), Loral Space and Communications Ltd. (1997-99), PanAmSat Corporation
(1996-99), PT Pasifik Satelit Nusantara (1996-99) and U.S. Satellite
Broadcasting Co. (1996-99).  Returns for MCI WorldCom use WorldCom, Inc. data
for all years and include MCI Corporation data for 1998-99.

            Comparison of Five-Year Cumulative Total Return Among
            COMSAT, S & P 500 Index, & Peer Group Index
            (Assumes $100 Invested on December 31, 1994 & Dividends Reinvested)


                           ANNUAL RETURN PERCENTAGE
                           Years Ending

Company Name/Index      Dec 95      Dec 96      Dec 97      Dec 98     Dec 99
-----------------------------------------------------------------------------
COMSAT CORP -SER 1       3.99        36.41       16.83       49.44     -44.39
S&P 500 INDEX           37.58        22.96       33.36       28.58      21.04
PEER GROUP              38.19         6.59       36.58       44.81      22.47




                                INDEXED RETURNS

                                Years Ending
                        Base
                        Period
Company Name/Index      Dec 94    Dec 95    Dec 96    Dec 97    Dec 98   DEC 99
-------------------------------------------------------------------------------
COMSAT CORP -SER 1       100      103.99    141.86    165.74    247.68   137.74
S&P 500 INDEX            100      137.58    169.17    225.60    290.08   351.12
PEER GROUP               100      138.19    147.29    201.16    291.31   356.75




Peer Group Companies
-------------------------------------------------------------------------------
AMERICAN MOBILE SATELLITE CP (95-99)      SPRINT FON GROUP (ALL YEARS)
ASIA SATELLITE TELECOM -ADR (96-99)       US SATELLITE BROADCST -CLA (96-98
                                          ACAUIRED MAY "99)
AT&T CORP (ALL YEARS)
BRITISH SKY BRDCSTG GP -ADR (95-99)
ECHOSTAR COMMUN CORP -CL A (96-99)
GLOBAL STAR TELECOMM LTD (96-99)
IRIDIUM WORLD COMMUN -CL A (96-99)
LORAL SPACE & COMMUNICATIONS (95-97)
MCI WORLDCOM INC (96-97)
PANAMSAT CORP (96-97)
PT PASIFIK SATELIT NUS -ADR (96-99)


                                      109
<PAGE>
Item 12:  Security Ownership of Certain Beneficial Owners and Management

Beneficial Owners

          We have reviewed the Schedules 13G or 13D filed with the Securities
and Exchange Commission (SEC) as of March 1, 2000, the most recent practicable
date for such information.  Based on that information and other information
available to COMSAT, we believe that the following table includes a complete
list of the persons that beneficially owned more than 5% of COMSAT's common
stock on that date.

Name and Address of Beneficial Owner    Amount and Nature of  Percent of Class
--------------------------------------  --------------------  -----------------
                                        Beneficial Ownership
                                        --------------------

Lockheed Martin Corporation                       25,958,282             48.76%
COMSAT Government Systems, LLC(1)

----------------
1  COMSAT Government Systems, LLC and Lockheed Martin Corporation jointly filed
a Schedule 13-D on September 20, 1999 reporting that COMSAT Government Systems,
LLC had acquired a total of 25,958,282 shares of COMSAT common stock.  COMSAT
Government Systems, LLC, a Delaware limited liability company that was formerly
known as Regulus, LLC, is a wholly-owned subsidiary of Lockheed Martin
Corporation, a Maryland corporation.  Both are located at 6801 Rockledge Drive,
Bethesda, Maryland 20817.

Management

          The following table sets forth information as of March 1, 2000, the
most recent practicable date for such information, regarding the beneficial
ownership of COMSAT's common stock by all directors, by each of the Named
Executive Officers, and by all directors and executive officers as a group.
Under the rules of the SEC, beneficial ownership includes any shares over which
an individual has sole or shared voting or investment power, and also any shares
that the individual has the right to acquire within 60 days through the exercise
of any stock option or other right.


                                      110
<PAGE>

Name(1)                                    Amount and Nature of
-------                                   -----------------------
                                          Beneficial Ownership(2)
                                          -----------------------
-----------------------------------------------------------------
Betty C. Alewine                                       357,107(3)
Marcus C. Bennett                                           7,441
Lucy Wilson Benson                                         42,285
Edwin I. Colodny                                           51,571
Allen E. Flower                                        161,078(4)
Neal B. Freeman                                            36,809
Caleb B. Hurtt                                             13,402
Peter W. Likins                                         39,724(5)
John H. Mattingly                                       73,134(6)
Larry G. Schafran                                        9,697(7)
Robert G. Schwartz                                         44,999
John V. Sponyoe                                                 0
Kathryn C. Turner                                           8,344
James J. Welch                                          14,514(8)
Guy P. Wyser-Pratte                                    811,613(9)
Warren Y. Zeger                                       212,994(10)
All directors and executive officers as             1,979,907(11)
a group 19 persons

1  Unless otherwise indicated, each person has sole voting and investment power
over the shares listed, and no director or executive officer beneficially owns
more than 1.0% of the Corporation's Common Stock.

2  Each number in this column has been rounded to the nearest whole share.  The
following non-employee directors elected to defer receipt of their 1,000 share
annual retainer for 1999 and instead received phantom stock units which are not
included in their beneficial ownership of COMSAT Common Stock:  Mr. Bennett,
Mrs. Benson, Mr. Hurtt, Mr. Schafran and Mrs. Turner. Beneficial ownership of
COMSAT common stock includes shares that may be acquired within 60 days after
March 1, 2000 through the exercise of options as follows:  Mrs. Alewine, 257,991
shares; Mr. Bennett, 7,441 shares; Mrs. Benson, 39,686 shares; Mr. Colodny,
48,369 shares; Mr. Flower, 137,945 shares; Mr. Freeman, 34,726 shares; Mr.
Hurtt, 12,402 shares; Dr. Likins, 35,966 shares; Mr. Mattingly, 56,551 shares;
Mr. Schafran, 7,441; Mr. Schwartz, 39,686 shares; Mrs. Turner, 7,441 shares; Mr.
Welch, 6,750 shares; Mr. Wyser-Pratte, 7,441 shares; Mr. Zeger, 187,731 shares;
and all directors and executive officers as a group, 954,589 shares.  The number
of option shares and shares awarded under COMSAT benefit plans which are
restricted against transfer that are included as beneficially owned have been
adjusted to give effect to the Ascent spin-off to COMSAT shareholders on June
27, 1997.  All outstanding options and restricted shares held on that date were
adjusted by multiplying the number of options or shares held by an adjustment
ratio of 1.2402.

3  Includes 31,472 shares which are restricted against transfer and 862 shares
which are held in the Corporation's Savings and Profit-Sharing Plan as of March
1, 2000.

4  Includes 14,980 shares which are restricted against transfer and 742 shares
which are held in the Corporation's Savings and Profit-Sharing Plan as of March
1, 2000.

5  Includes 1,286 shares over which Dr. Likins shares voting power and
investment power with Mrs. Likins.

6  Includes 11,992 shares which are restricted against transfer and 652 shares
which are held in the Corporation's Savings and Profit-Sharing Plan as of March
1, 2000.  Includes 226 shares held by Mr. Mattingly's mother for which Mr.
Mattingly disclaims beneficial ownership.


                                      111
<PAGE>
-------------------------------------------------------------------------------

7  Includes 2,256 shares held by Mrs. Schafran of which Mr. Schafran disclaims
beneficial ownership.

8  Includes 6,500 shares which are restricted against transfer and 353 shares
which are held in the Corporation's Savings and Profit-Sharing Plan as of March
1, 2000.

9  Includes 778,005 shares owned by investment partnerships and other managed
accounts for which Wyser-Pratte Management Co., Inc. and its affiliates are the
general partner or investment manager.  Mr. Wyser-Pratte beneficially owned
1.52% of the Corporation's outstanding Common Stock as of March 1, 2000.

10 Includes 14,236 shares which are restricted against transfer and 818 shares
which are held in the Corporation's Savings and Profit-Sharing Plan as of March
1, 2000.

11 Includes 2,482 shares with respect to which beneficial ownership is
disclaimed.  Also includes an aggregate of 95,928 shares which are restricted
against transfer and 4,400 shares which are held in the Corporation's Savings
and Profit-Sharing Plan as of March 1, 2000.  All directors and executive
officers as a group beneficially owned 3.72% of the Corporation's outstanding
Common Stock as of March 1, 2000.

 Changes in Control

          The Corporation has entered into an Agreement and Plan of Merger,
dated as of September 18, 1998, by and among the Corporation, Lockheed Martin
Corporation, a Maryland corporation, and Deneb Corporation, a Delaware
corporation which is a wholly-owned subsidiary of Lockheed Martin.  For a
description of the transaction see "Item 7: Management's Discussion and Analysis
of Financial Condition and Results of Operations - Business Combination with
Lockheed Martin" and Note 2 to the financial statements.

Item 13:  Certain Relationships and Related Transactions

          During 1999, COMSAT had several business transactions, in the ordinary
course of its business on commercial terms, with Lockheed Martin from which
COMSAT derived revenues of $8.6 million.  Of that amount, $8.1 million was
derived from the sale of satellite space segment capacity.  The remaining
$500,000 in revenues was for system engineering consulting services under a
subcontract related to the Astrolink satellite project.  Lockheed Martin owns
approximately 49% of COMSAT's outstanding common stock.  Marcus C. Bennett,
Caleb B. Hurtt and John V. Sponyoe  currently serve on the COMSAT Board of
Directors as the designated representatives of Lockheed Martin.  Lockheed Martin
is entitled to designate three directors under the terms of a shareholders
agreement dated as of September 18, 1998.  Messrs. Bennett and Hurtt also
currently serve on the Board of Directors of Lockheed Martin.  Mr. Sponyoe is
the Chief Executive Officer of Lockheed Martin Global Telecommunications.

          In addition, Kathryn C. Turner, a director of COMSAT and a member of
the Compensation Committee of COMSAT's Board of Directors, is the Chairperson,
Chief

                                      112
<PAGE>

Executive Officer and sole shareholder of Standard Technology, Inc., a
technology, engineering and systems integration firm.  Standard Technology has
provided services to Lockheed Martin under various contracts, which resulted
from arm's-length negotiations, in connection with a Department of Defense
mentor-protege program to encourage large defense contractors to subcontract
with minority-owned businesses. Lockheed Martin paid Standard Technology
$2,168,250 in 1999 under those contracts.  Pursuant to the mentor-protege
program, Lockheed Martin agreed to award Standard Technology with a targeted
amount of $1 million of contracts per year through 2001. Pursuant to the mentor-
protege program, Lockheed Martin also participates on an ad hoc advisory board
which provides guidance on business matters and has provided financial
assistance to Standard Technology. Lockheed Martin has made an unsecured loan to
Standard Technology, which is repayable over a fifteen year period commencing
upon the earlier of 2007 or the year after Standard Technology achieves annual
revenues in excess of $25 million. As of December 31, 1999, the outstanding
balance of the loan was $2,632,166, which includes previously capitalized
interest. Interest does not currently accrue on the loan but will accrue at 8%
per annum on the unpaid principal amount once repayment is required. In
addition, Lockheed Martin has guaranteed up to $2 million of Standard
Technology's borrowings under a line of credit with a commercial bank, which
also is secured by Standard Technology's accounts receivable and a personal
guarantee by Ms. Turner.



                                      113
<PAGE>

Item 14:  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)  Documents filed as part of this Report

1.   Consolidated Financial Statements and Supplementary Data of Registrant
     a.  Independent Auditors' Report
     b.  Consolidated Financial Statements of COMSAT Corporation and
Subsidiaries
          (i)   Consolidated Income Statements for the Years Ended December 31,
                1999, 1998 and 1997
          (ii)  Consolidated Balance Sheets as of December 31, 1999 and 1998
          (iii) Consolidated Cash Flow Statements for the Years Ended December
                31, 1999, 1998 and 1997
          (iv)  Statements of Changes in Consolidated Stockholders' Equity for
                the Years Ended December 31, 1999, 1998 and 1997
          (v)   Notes to Consolidated Financial Statements for the Years Ended
                December 31, 1999, 1998 and 1997

2.   Financial Statement Schedule Relating to the Consolidated Financial
     Statements of COMSAT Corporation for Each of the Three Years in the Period
     Ended December 31, 1999

     (a) Schedule II - Valuation and Qualifying Accounts

     All other Schedules have been omitted because they are not applicable or
not required or because the required information is included elsewhere in the
financial statements in this filing.

3.   Exhibits (listed according to the number assigned in the table in Item 601
of Regulation S-K)

Exhibit No. 2 - Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession

2.1  Agreement and Plan of Merger, dated as of September 18, 1998, among COMSAT
     Corporation, Lockheed Martin Corporation and Deneb Corporation
     (Incorporated by reference to Exhibit 2 to Registrant's
     Solicitation/Recommendation Statement on Schedule 14D-9 filed on September
     25, 1998)

2.2  Carrier Acquisition Agreement, dated as of September 18, 1998, by and among
     COMSAT Corporation, Lockheed Martin Corporation, Regulus, LLC, and COMSAT
     Government Systems, Inc.  (Incorporated by reference to Exhibit 5 to
     Registrant's Solicitation/Recommendation Statement on Schedule 14D-9 filed
     on September 25, 1998)

Exhibit No. 3 - Articles of Incorporation and By-laws

3.1  Articles of Incorporation of Registrant, composite copy, as amended through
     June 1, 1993 (Incorporated by reference from Exhibit No. 4(a) to
     Registrant's Registration Statement on Form S-3 (No. 33-51661) filed on
     December 22, 1993)

                                      114
<PAGE>

3.2  By-laws of Registrant, as amended through April 21, 1997 (Incorporated by
     reference from Exhibit No. 3.2 to Registrant's Current Report on Form 8-K
     filed on April 21, 1997)

3.3  Regulations adopted by Registrant's Board of Directors pursuant to Section
     5.02(c)f Registrant's Articles of Incorporation (Incorporated by reference
     from Exhibit No. 3(c) to Registrant's Report on Form 10-K for the fiscal
     year ended 1992)

Exhibit No. 4 - Instruments defining the rights of security holders, including
indentures

4.1  Specimen of a certificate representing Series I shares of COMSAT Common
     Stock, without par value, which are held by citizens of the United States
     (Incorporated by reference from Exhibit No. 4(a) to Registrant's Report on
     Form 10-K for the fiscal year ended December 31, 1993)

4.2  Specimen of a certificate representing Series I shares of COMSAT Common
     Stock, without par value, which are held by aliens (Incorporated by
     reference from Exhibit No. 4(b) to Registrant's Report on Form 10-K for the
     fiscal year ended December 31, 1982)

4.3  Specimen of a certificate representing Series II shares of COMSAT Common
     Stock, without par value (Incorporated by reference from Exhibit No. 4(c)
     to Registrant's Report on Form 10-K for the fiscal year ended December 31,
     1982)

4.4  Standard Multiple-Series Indenture Provisions dated March 15, 1991
     (Incorporated by reference from Exhibit No. 4(a) to Registrant's
     Registration Statement on Form S-3 (No. 33-39472) filed on March 15, 1991)

4.5  Indenture dated as of March 15, 1991 between Registrant and The Chase
     Manhattan Bank, N.A. (Incorporated by reference from Exhibit No. 4(b) to
     Registrant's Registration Statement on Form S-3 (No. 33-39472) filed on
     March 15, 1991)

4.6  Supplemental Indenture, dated as of June 29, 1994, from the Registrant to
     The Chase Manhattan Bank, N. A. (Incorporated by reference from Exhibit No.
     4(c) to Registrant's Registration Statement on Form S-3 (No. 33-54369)
     filed on June 30, 1994)

4.7  Officers' Certificate pursuant to Section 3.01 of the Indenture, dated as
     of March 15, 1991, from the Registrant to The Chase Manhattan Bank, N.A.,
     as Trustee, relating to the authorization of $75,000,000 aggregate
     principal amount of Registrant's 8.95% Notes Due 2001 (with form of Note
     attached) (Incorporated by reference from Exhibit No. 4 to Registrant's
     Current Report on Form 8-K filed on May 15, 1991)

4.8  Officers' Certificate pursuant to Section 3.01 of the Indenture, dated as
     of March 15, 1991, from the Registrant to The Chase Manhattan Bank, N.A.,
     as Trustee, relating to the authorization of $160,000,000 aggregate
     principal amount of Registrant's 8.125% Debentures Due 2004 (with form of
     Debenture attached) (Incorporated by reference from Exhibit No. 4 to
     Registrant's Current Report on Form 8-K filed on April 9, 1992)

                                      115
<PAGE>

4.9  Officers' Certificate pursuant to Section 3.01 of the Indenture, dated as
     of March 15, 1991, as supplemented by the Supplemental Indenture, dated as
     of June 29, 1994, from the Registrant to The Chase Manhattan Bank, N.A., as
     Trustee, relating to the authorization of $100,000,000 aggregate principal
     amount of Registrant's Medium Term Notes, Series A (with forms of Notes
     attached) (Incorporated by reference from Exhibit No. 4(I) to Registrant's
     Report on Form 10-K for the fiscal year ended December 31, 1994)

4.10 Limited Partnership Agreement of COMSAT Capital I, L.P., dated as of July
     18, 1995, relating to issuance of monthly income preferred securities
     (Incorporated by reference from Exhibit No. 4(a) to Registrant's Report on
     Form 10-Q for the quarter ended June 30, 1995)

4.11 Guarantee Agreement for Preferred Securities of COMSAT Capital I, L.P.,
     dated as of July 18, 1995 (Incorporated by reference from Exhibit No. 4(b)
     to Registrant's Report on Form 10-Q for the quarter ended June 30, 1995)

4.12 Indenture between Registrant and the First National Bank of Chicago, as
     Trustee, dated as of July 18, 1995 (Incorporated by reference from Exhibit
     No. 4(c)  to Registrant's Report on Form 10-Q for the quarter ended June
     30, 1995)

Exhibit No. 10 - Material Contracts

10.1 Agreement relating to the International Telecommunications Satellite
     Organization (INTELSAT) by Governments, which entered into force on
     February 12, 1973 (Incorporated by reference from Exhibit No. 10(a) to
     Registrant's Report on Form 10-K for the fiscal year ended December 31,
     1980)

10.2 Operating Agreement relating to INTELSAT by Governments which entered into
     force on February 12, 1973 (Incorporated by reference from Exhibit No.
     10(b) to Registrant's Report on Form 10-K for the fiscal year ended
     December 31, 1980)

10.3 Agreement dated August 15, 1975, among COMSAT General Corporation, RCA
     Global Communications, Inc., Western Union International, Inc. and ITT
     World Communications, Inc. relating to the establishment of a joint venture
     for the purpose of participating in the ownership and operation of a
     maritime communications satellite system and Amendment Nos. 1-4 and
     Amendment No. 5 dated March 24, 1980 (Incorporated by reference from
     Exhibit No. 10(p) to Registrant's Report on Form 10-K for the fiscal year
     ended December 31, 1980)

10.4 Amendment No. 6 to Exhibit 10.3 dated September 1, 1981 (Incorporated by
     reference from Exhibit No. 10(p)(ii) to Registrant's Report on Form 10-K
     for the fiscal year ended December 31, 1981)

10.5 Convention on the International Maritime Satellite Organization (Inmarsat)
     dated September 3, 1976 (Incorporated by reference from Exhibit No. 11 to
     Registrant's Report on Form 10-K for the fiscal year ended December 31,
     1978)

                                      116
<PAGE>

10.6   Operating Agreement on Inmarsat dated September 3, 1976 (Incorporated by
       reference from Exhibit No. 12 to Registrant's Report on Form 10-K for the
       fiscal year ended December 31, 1978)

10.7*  Registrant's 1982 Stock Option Plan (Incorporated by reference from
       Exhibit No. 10(x) to Registrant's Report on Form 10-K for the fiscal year
       ended December 31, 1981)

10.8*  Registrant's Insurance and Retirement Plan for Executives, as amended and
       restated effective January 1, 1997 (Incorporated by reference from
       Exhibit No. 10.10 to Registrant's Report on Form 10-K for the fiscal year
       ended December 31, 1997)

10.9*  Registrant's Non-Employee Directors Stock Plan (Incorporated by reference
       from Exhibit No. 10.11 to Registrant's Report on Form 10-K for the fiscal
       year ended December 31, 1996)

10.10  Agreement to Acquire and Lease (and Supplemental Agreements thereto)
       dated September 28 and October 10, 1988, respectively, among the
       International Maritime Satellite Organization (Inmarsat), the North Sea
       Marine Leasing Company, British Aerospace Public Limited Company, the
       European Investment Bank, Kreditanstalt Fuer Wiederaufbau, European
       Investment Bank (as Agent and as Trustee), Instituto Mobiliare Italiano,
       Credit National, Hellenic Industrial Development Bank, and Society
       Nationale de Credit a L'Industrie relating to the financing of three
       Inmarsat spacecraft (Incorporated by Reference from Exhibit No. 3(a) to
       Registrant's Report on Form 10-K for the fiscal year ended December 31,
       1988)

10.11* Registrant's 1990 Key Employee Stock Plan (Incorporated by reference from
       Exhibit No. 10 (p) to Registrant's Report on Form 10-K for the fiscal
       year ended December 31, 1989)

10.12  Amended and Restated Agreement, dated November 14, 1990, of Limited
       Partnership of Rock Spring II Limited Partnership (Incorporated by
       reference from Exhibit No. 10(a) to Registrant's Current Report on Form
       8-K filed on February 24, 1992)

10.13  Amended and Restated Lease Agreement, dated November 14, 1990, of Limited
       Partnership of Rock Spring II Limited Partnership (Incorporated by
       reference from Exhibit No. 10(b) to Registrant's Current Report on Form
       8-K filed on February 24, 1992)

10.14  Amended and Restated Ground Lease Indenture, dated November 14, 1990,
       between Anne D. Camalier (Landlord) and Rock Spring II Limited
       Partnership (Tenant) (Incorporated by reference from Exhibit No. 10(c) to
       Registrant's Current Report on Form 8-K filed on February 24, 1992)

10.15  Finance Facility Contract (and Supplemental Agreements thereto), dated
       December 20, 1991, among the International Maritime Satellite
       Organization (Inmarsat), Abbey National plc, General Electric Technical
       Services Company, Inc., European Investment Bank, Kreditanstalt Fuer
       Wiederaufbau, Instituto Mobiliare Italiano S.p.A., Credit National,
       Societe Nationale de Credit a L'Industrie, Finansieringsinstituttet for
       Industri OG Haandvaerk A/S, De Nationale Investeringsbank NV, and
       Osterreichische Investitionkredit Aktiengesellschaft relating to the

                                      117
<PAGE>

        financing of three Inmarsat spacecraft (Incorporated by reference from
        Exhibit No. 10 (dd) to Registrant's Report on Form 10-K for the fiscal
        year ended December 31, 1991)

10.16*  Registrant's Directors and Executives Deferred Compensation Plan, as
        amended by the Board of Directors on July 15, 1993 (Incorporated by
        reference from Exhibit No. 10.24 to the Registrant's Report on Form 10-K
        for the fiscal year ended December 31, 1996)

10.17  Fiscal Agency Agreement, dated as of August 6, 1992, between
       International Telecommunications Satellite Organization and Morgan
       Guaranty Trust Company of New York (Incorporated by reference from
       Exhibit No. 10 (dd) to Registrant's Report on Form 10-K for the fiscal
       year ended December 31, 1992)

10.18  Fiscal Agency Agreement, dated as of January 19, 1993, between
       International Telecommunications Satellite Organization and Morgan
       Guaranty Trust Company of New York (Incorporated by reference from
       Exhibit No. 10 (ee) to Registrant's Report on Form 10-K for the fiscal
       year ended December 31, 1992)

10.19  Agreement dated July 1, 1993, between Registrant and AT&T Easylink
       Services relating to exchange of telex traffic (Incorporated by reference
       from Exhibit No. 10(bb) to Registrant's Report on Form 10-K for the
       fiscal year ended December 31, 1993)

10.20  Agreement dated July 27, 1993, between the Registrant and American
       Telephone & Telegraph Company relating to utilization of space segment
       (Incorporated by reference from Exhibit No. 10(cc) to Registrant's Report
       on Form 10-K for the fiscal year ended December 31, 1993)

10.21  Amendment to Exhibit 10.20 dated as of December 1, 1995 (Incorporated by
       reference from Exhibit No. 10.34 to Registrant's Report on Form 10-K for
       the fiscal year ended December 31, 1995)

10.22  Amendment to Exhibit 10.20 dated as of January 8, 1997 (Incorporated by
       reference from Exhibit No. 10.32 to Registrant's Report on Form 10-K for
       the fiscal year ended December 31, 1996)

10.23  Agreement dated November 6, 1998, between Registrant and MCI
       International, Inc. relating to exchange of traffic (Incorporated by
       reference from Exhibit No. 10.23 to Registrant's Report on Form 10-K for
       the fiscal year ended December 31, 1998)

10.24  Agreement dated November 30, 1993, between the Registrant and Sprint
       Communications Company L.P. relating to utilization of space segment
       (Incorporated by reference from Exhibit No. 10(ee) to Registrant's Report
       on Form 10-K for the fiscal year ended December 31, 1993)

10.25  Amendment to Exhibit 10.24 dated April 7, 1995 (Incorporated by reference
       from Exhibit No. 10(a)(i) to Registrant's Report on Form 10-Q/A Amendment
       No. 2 dated June 29, 1995 for the quarter ended March 31, 1995)

                                      118
<PAGE>

10.26  Agreement dated December 10, 1993, between Registrant and Sprint
       International relating to the exchange of traffic (Incorporated by
       reference from Exhibit No. 10(ff) to Registrant's Report on Form 10-K for
       the fiscal year ended December 31, 1993)

10.27  Credit Agreement dated as of December 17, 1993 among Registrant,
       NationsBank of North Carolina, N.A., Bank of America National Trust and
       Savings Association, The First National Bank of Chicago, The Chase
       Manhattan Bank, N.A., The Sumitomo Bank, Limited, New York Branch, Swiss
       Bank Corporation, New York Branch, as lenders, and NationsBank of North
       Carolina, N.A., as agent (Incorporated by reference from Exhibit No.
       10(gg) to Registrant's Report on Form 10-K for the fiscal year ended
       December 31, 1993)

10.28  Amendment No. 1 to Exhibit 10.27 dated as of December 17, 1994
       (Incorporated by reference from Exhibit No. 10(cc)(i) to Registrant's
       Report on Form 10-K for the fiscal year ended December 31, 1994)

10.29  Agreement dated January 24, 1994, between MCI International, Inc. and
       Registrant relating to utilization of space segment (Incorporated by
       reference from Exhibit No. 10(ii) to Registrant's Report on Form 10-K for
       the fiscal year ended December 31, 1993)

10.30  Amendment to Exhibit 10.29 dated as of July 1, 1995 (Incorporated by
       reference from Exhibit No. 10.42 to Registrant's Report on Form 10-K for
       the fiscal year ended December 31, 1995)

10.31  Amendment to Exhibit 10.29 dated as of September 17, 1996 (Incorporated
       by reference from Exhibit No. 10.41 to Registrant's Report on Form 10-K
       for the fiscal year ended December 31, 1996)

10.32  Agreement dated June 1, 1996, between Registrant and AT&T relating to
       exchange of traffic (Incorporated by reference from Exhibit 10.32 to
       Registrant's Report on Form 10-K for the fiscal year ended December 31,
       1998)

10.33  Fiscal Agency Agreement between International Telecommunications
       Satellite Organization, Issuer, and Bankers Trust Company, Fiscal Agent
       and Principal Paying Agent, dated as of March 22, 1994 (Incorporated by
       reference from Exhibit No. 10(kk) to Registrant's Report on Form 10-K for
       the fiscal year ended December 31, 1993)

10.34  Distribution Agreement dated July 11, 1994 between Registrant and CS
       First Boston Corporation, Salomon Brothers Inc and Nationsbanc Capital
       Markets, Inc., as Distributors, of Registrant's Medium-Term Notes, Series
       A (Incorporated by reference from Exhibit No. 10(ff) to Registrant's
       Report on Form 10-K for the fiscal year ended December 31, 1994)

10.35  Fiscal Agency Agreement between International Telecommunications
       Satellite Organization, Issuer, and Morgan Guaranty Trust Company, Fiscal
       Agent and Principal Paying Agent, dated as of October 14, 1994
       (Incorporated by reference from Exhibit No. 10(gg) to Registrant's Report
       on Form 10-K for the fiscal year ended December 31, 1994)

10.36* Registrant's Annual Incentive Plan (Incorporated by reference from
       Exhibit No. 10(hh) to Registrant's Report on Form 10-K for the fiscal
       year ended December 31, 1994)

                                      119
<PAGE>

10.37  Fiscal Agency Agreement between International Telecommunications
       Satellite Organization, Issuer, and Morgan Guaranty Trust Company, Fiscal
       Agent and Principal Paying Agent, dated as of February 28, 1995
       (Incorporated by reference from Exhibit No. 10(ii) to Registrant's Report
       on Form 10-K for the fiscal year ended December 31, 1994)

10.38* Registrant's 1995 Key Employee Stock Plan (Incorporated by reference
       from Exhibit No. 10.51 to the Registrant's Report on Form 10-K for the
       fiscal year ended December 31, 1996)

10.39  Distribution Agreement, dated as of June 3, 1997, between the Registrant
       and Ascent (Incorporated by reference from Exhibit 10.2 to the
       Registrant's Report on Form 8-K dated June 18, 1997)

10.40  Tax Disaffiliation Agreement, dated as of June 3, 1997, between the
       Registrant and Ascent (Incorporated by reference from Exhibit 10.3 to the
       Registrant's Report on Form 8-K dated June 18, 1997)

10.41  Amended and Restated Employment Agreement, dated as of July 18, 1997,
       between the Registrant and Betty C. Alewine (Incorporated by reference
       from Exhibit 9 to the Registrant's Solicitation/Recommendation Statement
       on Schedule 14D-9 filed on September 25, 1998)

10.42  Amended and Restated Employment Agreement, dated as of July 18, 1997,
       between the Registrant and Allen E. Flower (Incorporated by reference
       from Exhibit 11 to the Registrant's Solicitation/Recommendation Statement
       on Schedule 14D-9 filed on September 25, 1998)

10.43  Amended and Restated Employment Agreement, dated as of July 18, 1997,
       between the Registrant and Warren Y. Zeger (Incorporated by reference
       from Exhibit 13 to the Registrant's Solicitation/Recommendation Statement
       on Schedule 14D-9 filed on September 25, 1998)

10.44  Shareholders' Agreement, dated as of September 18, 1998, between COMSAT
       Corporation and Lockheed Martin Corporation (Incorporated by reference to
       Exhibit 3 to the Registrant's Solicitation/Recommendation Statement on
       Schedule 14D-9 filed on September 25, 1998)

10.45  Registration Rights Agreement, dated as of September 18, 1998, between
       COMSAT Corporation and Lockheed Martin Corporation (Incorporated by
       reference to Exhibit 4 to the Registrant's Solicitation/Recommendation
       Statement on Schedule 14D-9 filed on September 25, 1998)

10.46  Amendment to Amended and Restated Employment Agreement, between COMSAT
       Corporation and Betty C. Alewine, dated as of September 18, 1998
       (Incorporated by reference to Exhibit 10 to the Registrant's
       Solicitation/Recommendation Statement on Schedule 14D-9 filed on
       September 25, 1998)

10.47  Amendment to Amended and Restated Employment Agreement, between COMSAT
       Corporation and Allen E. Flower, dated as of September 18, 1998
       (Incorporated by reference to Exhibit 12 to the Registrant's
       Solicitation/Recommendation Statement on Schedule 14D-9 filed on
       September 25, 1998)

                                      120
<PAGE>

10.48  Amendment to Amended and Restated Employment Agreement, between COMSAT
       Corporation and Warren Y. Zeger, dated as of September 18, 1998
       (Incorporated by reference to Exhibit 14 to the Registrant's
       Solicitation/Recommendation Statement on Schedule 14D-9 filed on
       September 25, 1998)

10.49  Stock Purchase and Sale Agreement, dated as of March 16, 1998 among
       COMSAT Corporation, TBG Industries, Inc. and Prodelin Holding Corporation
       (Incorporated by reference to Exhibit 10.1 to the Registrant's Report on
       Form 10-Q for the quarter ended March 31, 1998)

10.50  Master Lease Agreement by and between LCOR Clarksburg L.L.C., as
       Landlord, and COMSAT Corporation, as Tenant, dated as of September 12,
       1997 (Incorporated by reference from Exhibit 10.50 to the Registrant's
       Report on Form 10-K for the fiscal year ended December 31, 1998)

10.51  Facilities Lease Agreement by and between LCOR Clarksburg L.L.C., as
       Landlord, and COMSAT Corporation, as Tenant, dated as of September 12,
       1997 (Incorporated by reference from Exhibit 10.51 to the Registrant's
       Report on Form 10-K for the fiscal year ended December 31, 1998)

10.52  Agreement among COMSAT Corporation, COMSAT Argentina, S.A. and ICO Global
       Communications (Holdings) Limited, ICO Global Communications Holdings
       B.V. and ICO Global Communications Services Inc., dated as of September
       30, 1998 (Incorporated by reference from Exhibit 10.52 to the
       Registrant's Report on Form 10-K for the fiscal year ended December 31,
       1998)

10.53* COMSAT Corporation Retention Bonus Plan, effective as of September 18,
       1998 (Incorporated by reference to Exhibit 15 to the Registrant's
       Solicitation/Recommendation Statement on Schedule 14D-9 filed on
       September 25, 1998)

10.54* COMSAT Corporation Amended and Restated Change of Control Severance
       Plan, effective as of September 18, 1998 (Incorporated by reference to
       Exhibit 16 to the Registrant's Solicitation/Recommendation Statement on
       Schedule 14D-9 filed on September 25, 1998)

10.55* Amendment to COMSAT Corporation 1995 Key Employee Stock Plan, dated as of
       September 18, 1998 (Incorporated by reference to Exhibit 17 to the
       Registrant's Solicitation/Recommendation Statement on Schedule 14D-9
       filed on September 25, 1998)

10.56* Amendment to COMSAT Corporation 1990 Key Employee Stock Plan, dated as of
       September 18, 1998 (Incorporated by reference to Exhibit 18 to the
       Registrant's Solicitation/Recommendation Statement on Schedule 14D-9
       filed on September 25, 1998)

                                      121
<PAGE>

10.57* Amendment to COMSAT Corporation Non-Employee Directors Stock Plan, dated
       as of September 18, 1998 (Incorporated by reference to Exhibit 19 to the
       Registrant's Solicitation/Recommendation Statement on Schedule 14D-9
       filed on September 25, 1998)

10.58* Amendment to COMSAT Corporation Directors and Executives Deferred
       Compensation Plan, dated as of September 18, 1998 (Incorporated by
       reference to Exhibit 20 to the Registrant's Solicitation/Recommendation
       Statement on Schedule 14D-9 filed on September 25, 1998)

10.59  Land Earth Station Operator Agreement among COMSAT Corporation, Inmarsat
       Holdings LTD and Inmarsat LTD dated as of February 10, 1999 (Incorporated
       by reference to Exhibit 10.1 to the Registrant's Report on Form 10-Q for
       the quarter ended June 30, 1999).

10.60  Shareholders Agreement between INMARSAT ONE LTD, subsequently renamed
       Inmarsat Holdings LTD, and COMSAT Corporation dated as of February 9,
       1999 (Incorporated by reference to Exhibit 10.2 to the Registrant's
       Report on Form 10-Q for the quarter ended June 30, 1999).

10.61  Fifth Amendment to Agreement (see Exhibit 10.20), dated as of October 1,
       1999, between the Registrant and AT&T Corp. relating to utilization of
       space segment.

10.62  Consulting Agreement, between the Registrant and Lawrence S. Eagleburger,
       dated as of October 14, 1999.

Exhibit No. 21 - Subsidiaries of the Registrant as of December 31, 1999

Exhibit No. 23 - Consents of experts and counsel

       Consent of Independent Auditors dated March 28, 2000.

Exhibit No. 24 - Power of Attorney

Exhibit No. 27 - Financial Data Schedule


       (b)  Reports on Form 8-K

       None.

*Compensatory plan or arrangement.

                                      122
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       COMSAT CORPORATION
                                       (Registrant)

Date:  March 30, 2000                  By /s/ Alan G. Korobov
                                       -----------------------------
                                       (Alan G. Korobov, Controller)

  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by each of the following persons on behalf of the
Registrant and in the capacity indicated as of March 30, 2000.

                     (1)  Principal executive officer

                     By   /s/ Betty C. Alewine*
                        --------------------------------------
                        (Betty C. Alewine, President and Chief
                        Executive Officer and Director)


                     (2)  Principal financial officer

                     By   /s/ Allen E. Flower*
                        --------------------------------------
                        (Allen E. Flower, Vice President and
                        Chief Financial Officer)


                     (3)  Principal accounting officer

                     By   /s/ Alan G. Korobov
                        --------------------------------------
                        (Alan G. Korobov, Controller)

                                      123
<PAGE>

                     (4)  Board of Directors

                     By   /s/ Edwin I. Colodny*
                        --------------------------------------
                        (Edwin I. Colodny, Chairman and
                        Director)


                     By   /s/ Marcus C. Bennett*
                        --------------------------------------
                        (Marcus C. Bennett, Director)


                     By   /s/ Lucy Wilson Benson*
                        --------------------------------------
                        (Lucy Wilson Benson, Director)


                     By   /s/ Neal B. Freeman*
                        --------------------------------------
                        (Neal B. Freeman, Director)


                     By   /s/ Caleb B. Hurtt*
                        --------------------------------------
                        (Caleb B. Hurtt, Director)


                     By   /s/ Peter W. Likins*
                        --------------------------------------
                        (Peter W. Likins, Director)


                     By   /s/ Larry G. Schafran*
                        --------------------------------------
                        (Larry G. Schafran, Director)


                     By   /s/ John V. Sponyoe*
                        --------------------------------------
                        (John V. Sponyoe, Director)

                                      124
<PAGE>

                     By   /s/ Robert G. Schwartz*
                        --------------------------------------
                        (Robert G. Schwartz, Director)


                     By   /s/ Kathryn C. Turner*
                        --------------------------------------
                        (Kathryn C. Turner, Director)


                     By   /s/ Guy P. Wyser-Pratte*
                        --------------------------------------
                        (Guy P. Wyser-Pratte, Director)



*By   /s/ Alan G. Korobov
      --------------------------------------
      Alan G. Korobov
       Attorney-in-fact

                                      125
<PAGE>

                      COMSAT CORPORATION AND SUBSIDIARIES
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              For the Years Ended December 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                            Balance at
                                             Beginning   Charged to                  Balance at
In thousands                                  of Year     Expenses   Deductions(a)  End of Year
------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>         <C>            <C>
1997:
Allowance for loss on accounts receivable       $11,159      $6,306      $2,730          $14,735
Allowance for loss on investments               $ 1,105      $1,008           -          $ 2,113

1998:
Allowance for loss on accounts receivable       $14,735      $4,749      $2,361          $17,123
Allowance for loss on investments               $ 2,113      $1,950           -          $ 4,063

1999:
Allowance for loss on accounts receivable       $17,123      $5,472      $7,209          $15,386
Allowance for loss on investments               $ 4,063           -      $1,950          $ 2,113
</TABLE>

(a)  Uncollectible amounts written off, recoveries of amounts previously
     reserved, and other adjustments.


                                      S-1
<PAGE>

                   INDEX OF EXHIBITS FILED WITH THIS REPORT



Exhibit No.      Description
-----------      -----------


10.61    Fifth Amendment to Agreement (see Exhibit 10.20), dated as of October
         1, 1999, between the Registrant and AT&T Corp. relating to utilization
         of space segment.

10.62    Consulting Agreement, between the Registrant and Lawrence S.
         Eagleburger, dated as of October 14, 1999.

21       Subsidiaries of the Registrant as of December 31, 1999

23       Consent of Independent Auditors dated March 28, 2000

24       Power of Attorney

27       Financial Data Schedule